S. Hrg. 104-189
CREATING A NEW ONE DOLLAR COIN
[S. 874]
Y 4. B 22/3; S. HRG. 104-189 .„^,,„
Creating a Neu Dne Dollar Coin (S.8. .. ore the
-re COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
i ' ^ UNITED STATES SENATE
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
ON
S. 874
TO PROVIDE FOR THE MINTING AND CIRCULATION OF ONE DOLLAR
COINS, AND FOR OTHER PURPOSES
THE COST SAVING AND BUDGETARY IMPACT FROM THE PROPOSAL TO
ELIMINATE THE ONE DOLLAR BANKNOTE NOW IN CIRCULATION AND
REPLACE IT WITH A NEW ONE DOLLAR COIN
JULY 13, 1995
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
U.S. GOVERNMENT PRINTING OFFICE ' '"/^ DCn-^
93-669 CC WASHINGTON : 1995
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-047742-5
S. Hrg. 104-189
CREATING A NEW ONE DOLLAR COIN
[S. 874]
Y4.B 22/3; S. HRG. 104-189
Creating a Neu One Dollar Coin (S.8. .. ore the
^at. COMMITTEE ON
S-'/] BANKING, HOUSING, AND URBAN AFFAIRS
I^lfo UNITED STATES SENATE
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
ON
S. 874
TO PROVIDE FOR THE MINTING AND CIRCULATION OF ONE DOLLAR
COINS, AND FOR OTHER PURPOSES
THE COST SAVING AND BUDGETARY IMPACT FROM THE PROPOSAL TO
ELIMINATE THE ONE DOLLAR BANKNOTE NOW IN CIRCULATION AND
REPLACE IT WITH A NEW ONE DOLLAR COIN
JULY 13, 1995
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
U.S. GOVERNMENT PRINTING OFFICE
93-669 CC WASHINGTON : 1995
^^S^
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-047742-5
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
ALFONSE M. D'AMATO, New York, Chairman
PHIL GRAMM, Texas PAUL S. SARBANES, Maryland
RICHARD C. SHELBY, Alabama CHRISTOPHER J. DODD, Connecticut
CHRISTOPHER S. BOND, Missouri JOHN F. KERRY, Massachusetts
CONNIE MACK, Florida RICHARD H. BRYAN, Nevada
LAUCH FAIRCLOTH, North CaroUna BARBARA BOXER, California
ROBERT F. BENNETT, Utah CAROL MOSELEY-BRAUN, IlUnois
ROD GRAMS, Minnesota PATTY MURRAY, Washington
BILL FRIST, Tennessee
Howard A Menell, Staff Director
Robert J. Giuffra, Jr., Chief Counsel
Phiup E. Bechtel, Deputy Staff Director
Madelyn Simmons, Professional Staff Member
Steven B. Harris, Democratic Staff Director and Chief Counsel
Emily L. Frydrych, Democratic Professional Staff Member
Edward M. Malan, Editor
(II)
CONTENTS
THURSDAY, JULY 13, 1995
Page
Opening statement of Chairman D'Amato 1
Prepared statement 56
Opening statements, comments, or prepared statements of:
Senator Grams 2
Senator Faircloth 3
Senator Frist 4
Senator Mack 4
Congressman John W. Olver 57
Senator Kerry 12
Senator Moseley-Braun 24
Prepared statement 56
WITNESSES
Edward W. Kelley, Jr., Member of the Board, Board of Governors, Federal
Reserve System 4
Prepared statement 58
Phillip N. Diehl, Director, United States Mint 7
Prepared statement 62
Public opposition 62
Overstated savings 63
Compliance 65
Underestimated risks 65
Historical note 66
Letter dated July 26, 1995, to Senator D'Amato, regarding additiona.1
comments on S. 874 67
L. Nye Stevens, Director, Federal Management Workforce Issues, General
Government Division, General Accounting Office, Washington, DC 22
Prepared statement 69
Summary 70
Potential savings to the U.S. Government 70
Lessons learned from the Susan B. Anthony 1-dollar coin 72
Foreign experiences 72
Public resistance to Canadian l-doUar coin short-lived 72
James L. Blum, Deputy Director, Congressional Budget Office, Washington,
DC 24
Prepared statement 74
Cost savings to the Government 75
The effects on deficit reduction of converting to coins 76
Differences between estimates of savings 78
Other possible budgetary effects 78
Conclusion 79
William C. Buetow, senior vice president/treasurer of finance and capital
management, Chicago Transit Authority, Chicago, IL; on behalf of the
American Public Transit Association 35
Prepared statement 79
Tommy E. Looper, executive vice president and CEO, Anchor Bank, Myrtle
beach, SC; on behalf of the American Bankers Association 38
Prepared statement 81
The requirements for successful implementation 82
Primary issues for the banking industry 82
Conclusion 84
(III)
IV
Page
R. David Clayton, president, Automatic Food Service, Inc., Nashville, TN;
on behalf of the Automatic Merchandising Association 41
Prepared statement 85
Why the vending industry needs the dollar coin 86
Vending machines are ready for the new coin 86
Size of the vending industry 86
The claim that vending machine prices will be raised 87
Conclusion 87
Linda Golodner, president. National Consumers League, Washington, DC 43
Prepared statement 87
Robert J. Leuver, former director, Bureau of Engraving and Printing, Wash-
ington, DC; president. Numismatic Association, Colorado Springs, CO; on
behalf of the Coin Coalition 45
Prepared statement 89
Introduction 89
Summary 89
I. Government Savings — Federal 89
II. Mass Transit Would Save $124 Million Annually 90
III. Visually Impaired Support the $1 Coin 91
IV. A $1 Coin Will Not Be Inflationary 91
V. Today's DoUar is the Quarter of the 1960's 92
VI. Seigniorage & Portfolio Earnings 92
VIL Why the $1 Note Must Be Phased Out 93
VIII. Phase-In Period of $1 coins 94
DC. Industry preparedness 94
X. Public Opinion 94
XI. Effects on Production Levels at the Bxu-eau of Engraving & Print-
ing 94
XII. Fighting Counterfeiting with New Cvurency 95
XIII. Foreign Experience 95
XTV. Summary Environmental Analysis: 10-Year Totals 96
XV. Weight in the Pocket 97
XVI. Lessons Learned From the Anthony Dollar 98
XVII. Editorial Support 99
David J. Ryder, former du-ector. United States Mint; president. The Ryder
Company, Washington, DC; on behalf of Save the Greenback 47
Prepared statement 101
Additional Materials Supplied for the Record
S. 874 105
The American Society of Travel Agents 103
CREATING A NEW ONE DOLLAR COIN [S. 874]
THURSDAY, JULY 13, 1995
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:10 a.m., in room SD-538 of the Dirk-
sen Senate Office Building, Senator Al D'Amato (Chairman of the
Committee) presiding.
OPENING COMMENTS OF CHAIRMAN D'AMATO
The Chairman. The hearing will come to order.
Good morning. This Committee today considers an issue that af-
fects everyone. The question is whether or not we should mint and
circulate a dollar coin in place of the dollar bill.
I'd first like to thank Senator Grams for his leadership and hard
work on this matter. Senator Grams has been diligent in bringing
this matter to our attention by introducing S. 874, the United
States One Dollar Coin Act.
I am going to ask that all of my statement be included in the
record as if read in its entirety. Let me attempt to summarize,
though.
Proponents of Senator Grams's bill would argue that savings to
the Government and the positive effect on the budget would be in
the millions, possibly even in the billions, of dollars.
Opponents of the bill question the estimate as it relates to sav-
ings and they cite the huge differences in reported totals. They also
cite polls showing that the public is not ready to give up the dollar
bill.
I understand the motivation of those who wish to save the green-
back. The dollar bill is a powerful symbol for America and the
world. It represents a lot more than one hundred pennies or what
it can or can't buy. It represents stability. It represents tradition.
The dollar bill's significance is not confined to the United States.
It has a universal recognition. That recognition translates into se-
curity and reliability all over the world.
This is not an easy issue. You cannot say that any side is right
or wrong. There are merits for those who propose. I believe that
there are substantial dollar savings that can be achieved, without
a doubt.
By the same token, no one can deny the arguments of those who
are concerned with the significance of the dollar and the symbol
that it represents.
(1)
So this is not an easy question. That's why I want to commend
Senator Grams for his leadership in this matter in bringing it forth
in this way so that we can have a hearing and focus in on the facts.
Senator Grams.
OPENING STATEMENT OF SENATOR GRAMS
Senator Grams. Thank you very much, Mr. Chairman. Also, I
want to thank you for calling today's hearing on the issue of what
is of great importance to me, and I believe to every person who is
concerned about Government waste, who use vending machines,
ride mass transit, or suffers from a visual disability.
Of course, I'm talking about replacing the one dollar bill with a
dollar coin, an idea, I believe, whose time has come, and in which
I've introduced legislation — ^that is, S. 874,
I don't know of any Member of Congress who has not been urged
by his or her constituents to cut Grovemment waste and to get on
with the business of eliminating our budget deficit.
With Congress having passed the budget resolution 2 weeks ago,
we have outlined the gUdepath toward a balanced budget within 7
years. Now we are faced with the hard choices and decisions to im-
plement this plan and, believe me, every dollar is going to count.
To accomplish this task, I've always advocated improving the
way Government conducts the business of the people and develop-
ing policies which can help us carry out our responsibilities in the
most cost-efficient manner possible.
One simple way to do this is to switch from using the one dollar
bills to using a one dollar coin.
Now nearly every study shows that this practice would save our
taxpayers dollars. For example, the Federal Reserve Board esti-
mates that the one dollar coin would save $456 million every year,
and that is no small chunk of change.
I am pleased that Governor Edward Kelley from the Fed can be
here today, as well as representatives of the GAO and the CBO,
who have calculated savings from the one dollar coin as well.
Savings from S. 874 are not, however, simply limited to tax dol-
lars. Consumers and users of vending machines and mass transit
will benefit as well. In fact, studies show that switching to a one
dollar coin would save the mass transit industry as much as $124
million every year.
I also look forward this morning to hearing the testimony of Wil-
liam Buetow, from the Chicago Transit Authority, on his testimony
on savings that can be passed down to the thousands of people who
use mass transit every day.
Another group of Americans who will benefit from S. 874 are
those who suffer from a visual disability. Our legislation is a major
step forward for these Americans who run the risk every day of ac-
cidentally spending a large bill or being cheated when receiving
change.
Replacing the one dollar bill with a coin will help tremendously
in reducing such unintended discrimination.
Finally, we should learn a lesson from other countries. Every
major industrial nation in the world has already switched to a high
denomination coin and removed or phased out their paper currency
of the same value.
I brought with me a display of 24 different countries coins that
they have used to replace their dollar bills or other currency that
they've had. I'll just pass that around, if I could.
In fact, in Canada, that country has experienced so much success
with their coin, which they call the "loonie," that they are now in
the process of issuing a two dollar coin as well.
Mr. Chairman, I'm pleased to report that we do have broad bi-
partisan support for our legislation. I'm also honored that Senator
Moseley-Braun has joined me as the two lead sponsors of S. 874.
Mr. Chairman, under the budget resolution just passed by Con-
gress, this Committee has been instructed to find over $2 billion in
savings over the next 7 years. This morning, our offer to you and
the other Members of the Banking Committee is a reasonable, com-
mon sense way of fulfilling this responsibility and also doing a
great service for the American people at the same time.
I'm urging my colleagues on the Committee to join me and Sen-
ator Moseley-Braun in carrying the resolution of 1995 into the most
basic function of Government, and that is the printing and minting
of currency.
Our work begins today in this room and, again, Mr. Chairman,
I want to thank you very much for holding this important hearing
and I look forward to listening to the testimony that will be pre-
sented.
Also, I would also like to introduce one of the cosponsors of the
dollar coin in the House, Mr. Jim Kolbe, Congressman Kolbe. He
has a statement that he would also like to submit in writing for
this Committee.
The Chairman. So ordered.
Senator Grams. Thank you. Thank you very much, Mr. Chair-
man.
The Chairman. Senator Faircloth.
OPENING STATEMENT OF SENATOR FAIRCLOTH
Senator FAIRCLOTH. Thank you, Mr. Chairman.
Certainly, the idea of a dollar coin is a most interesting subject
and I think it's one this Committee is exploring and it needs to
look into in depth.
North Carolinians have been calling me going on both sides of it.
But the estimates are that this coin could save as much as $456
million a year. If these estimates are correct, and I believe they
are, then any idea that could generate that kind of savings, we
need to follow.
Now the dollar bill itself has a life of 18 months. With most peo-
ple, it's about 30 seconds.
[Laughter.]
Whereas, a coin can last for 30 years, and that's a pretty signifi-
cant difference in the life we could expect from the coin.
Mr. Chairman, my concern, like many people, is whether a dollar
coin will somehow increase the cost of products sold at vending ma-
chines or other items like mass transit fares.
I am told that the cost of producing a vending machine that ac-
cepts dollar bills is several thousand dollars more than a vending
machine that accepts just hard coins.
Thus, it's a bit of irony. By not having a dollar coin, we may be
increasing the cost of food, soda, or convenience foods that are sold
out of machines.
I think we need to take a look at it fiiUy and I think that if it
would produce the savings, we should get into it. But I'm concerned
that the American public, whether they're ready for a dollar coin
or not, are ready to accept a dollar coin. We know that there are
a lot of Susan B. Anthony ones still in storage. Will it have an in-
flationary effect?
These are some of the things we don't know, we need to look
into, and that's what the hearing's for, Mr. Chairman, and I thank
you for holding it.
The Chairman. Thank you, Senator.
Senator Frist.
OPENING COMMENTS OF SENATOR FRIST
Senator FRIST. Mr. Chairman, can I take this opportunity to in-
troduce somebody on the third panel, because I will not be here?
The Chairman. Absolutely. Certainly.
Senator Frist. I have the pleasure of introducing a member of
the third panel today, Mr. David Cla3i;cn, who is president of the
Automatic Food Service of Nashville, Tennessee.
Today, he'll be speaking on behalf of the National Automatic
Merchandising Association.
Mr. Clayton is a fellow Nashvillian, Tennessean, who has been
involved in the vending industry for over 30 years, and has been
president of Automatic Food Service since 1975.
Mr. Cla5^on's work in the vending industry includes being presi-
dent of the Tennessee Automatic Merchandising Association from
1979 to 1980, and chairman of the National Automatic Merchandis-
ing Association in 1993.
Currently, Mr. Clayton is a director of the boards of both the
TAMA and NAMA and is also the chairman of government affairs
oftheNAMA.
I personally appreciate Mr. Clayton coming forward and testify-
ing before our Committee.
The Chairman. Thank you, Senator.
Senator Mack.
OPENING COMMENT OF SENATOR MACK
Senator Mack. I have no opening statement.
The Chairman. OK. We'll turn to our first panel. A Member of
the Board of Governors of the Federal Reserve System, Mr. Kelley.
Mr. Kelley, it's good to see you.
Our other panelist is Mr. Philip N. Diehl, who is the Director of
the United States Mint.
Mr. Kelley.
STATEMENT OF EDWARD W. KELLEY, JR., MEMBER OF THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Kelley. Would you like me to start, sir?
The Chairman. Certainly.
Mr. Kelley. Thank you.
The Chairman. Let me first say that we will enter your state-
ment into the record as if read in its entirety. We would appreciate
if you would go right to the highlights of your testimony because
I think that's more important. So then, the Members present can
pose their questions to you.
Mr. Kelley. Fine. Thank you, sir.
The Board of Governors is pleased to have the opportunity to
present its views on S. 874, which would provide for substituting
a one dollar coin for the one dollar bank note now in circulation,
and on several benefits and costs of making such a replacement.
In summary, the dollar coin would produce a substantial budg-
etary gain to the Federal Government, provided that the one dollar
note is withdrawn from circulation.
The Board staff estimates that the gain would be about $2.28 bil-
lion, in nominal terms, over the first 5 years after introduction of
the new coin and would average about $456 million per year in real
discounted present value terms over the assumed 30-year life of the
dollar coin.
The Board believes, however, that the convenience and needs of
the American public, as well as cost savings, should weigh heavily
in this decision.
Experience in Canada and other countries where similar changes
have been made in recent years suggests that the public will over
time find a dollar coin more convenient than the dollar note.
Finally, we would note that the significance of the U.S. dollar
goes beyond the purchasing power that it represents or the utility
it provides. For Americans, the dollar is a symbol of economic and
political stabiUty and a source of national pride. Consequently, a
change should be made only for compelling reasons.
If after taking account of all these considerations the Congress
is inclined toward replacing the dollar note, it should enact legisla-
tion with a reasonably delayed effective date so that all of those af-
fected can plan adequately for the transition.
The impact on the Federal budget of issuing coins and currency
notes is not widely understood by the public, so I have devoted a
portion of my written statement to reviewing those fundamentals.
I will just say now that although the accounting processes and
budget presentations are quite different for notes and coins, in sub-
stance, first, both issuing coins and issuing currency notes lower
the Government's effective cost of borrowing from the public by ap-
proximately the value of the coin or currency notes in circulation
times the interest rate that the Government pays on its debt.
Second, there is an offsetting cost to the Government associated
with servicing the outstanding circulating coins or notes which in-
volves replacing unfit coins and notes as they wear out and operat-
ing the Federal Reserve currency and coin processing facilities that
provide the public with good quality and genuine coins and notes.
The Board's staff has estimated the gain to the budget position
of the Federal Government by substituting a dollar coin for the dol-
lar note, taking into account the various factors that would affect
the budget. These include the respective costs and average lives of
dollar notes and dollar coins, the higher cost for larger denomina-
tion notes that would follow from a reduction in note production of
almost 50 percent and importantly, the likely substitution of two
one dollar coins for each one dollar note remaining after a pre-
sumed larger public demand for two dollar notes.
The Board staff estimates that within the first 5 years of the im-
plementation, the Federal Government budget position would be
improved by a total of $2.28 billion. The average yearly gain in
present-value terms over the 30-year life of a one dollar coin is esti-
mated at $456 miUion.
There are other factors that could substantially add to the gains
of such a substitution, but that are inestimable and so are not in-
cluded in our calculations. For example, there is likely to be a very
considerable numismatic or sentimental collecting of one dollar
notes as a result of an announcement that they soon would be no
longer issued, although I hasten to say that the one dollar notes
would continue to be legal tender.
These gains would be unlikely to be achieved, however, if the dol-
lar note were not withdrawn from circulation. First of all, many
people, at least initially, would continue to prefer the note if given
a choice. That being true, the private sector, notably banking and
retail establishments, not knowing how extensively the public
would use the dollar coin, would be reluctant to make the infra-
structure outlays necessary for the coin to succeed, such as training
employees on new cash register drawer procedures, ordering new
coin inventories, new arrangements with financial institutions, and
so forth.
Likewise, the pubhc would refrain from using the new coin if the
retail sector were not prepared. In the meantime, the public sector,
particularly the Bureau of Engraving and Printing, the Mint, and
the Fed, perhaps also the Postal Service and mass transit systems,
not knowing what the respective demands would be for dollar notes
and coins and wanting to be able to meet any likely demand, would
almost inevitably overinvest in production and processing capacity.
As important as the budgetary gains would be, the Board be-
lieves that the convenience and needs of the public should also
weigh heavily in this decision. In this regard, opinion surveys indi-
cate that the American public generally is satisfied with the
present currency system and may not initially welcome replacing
the dollar notes.
There is evidence in the experience of other countries, including
Canada, however, that over time, a dollar coin would come to be
recognized as more convenient, cleaner, and more efficient than the
one dollar note.
If designed properly, a dollar coin may very well be able to evoke
confidence in the currency system and be a source of national pride
to the same extent that the dollar note is now. Market testing,
such as with focus groups, can help to achieve this result.
If this Committee decides to move forward with dollar coin legis-
lation, please be aware that S. 874 would not, in our view, provide
enough preparation time for those most involved — the Nation's
banking and retail establishments. Treasury Bureaus of the Mint
and of Engraving and Printing, and the Federal Reserve Banks,
and we have two concerns in that regard. First, any legislation
should, in our view, give the Mint adequate time in which to be
certain that the coin design will meet the needs of users well into
the next century. This has both physical and aesthetic design im-
plications and presumably would require considerable market test-
ing. Closely related is the need for adequate time in which to
produce a large stock of new dollar coins once the design is ap-
proved.
In our view, any legislation should give the Treasury Department
a good deal of freedom to set the Mint's production schedule so as
to optimize costs and resource usage at the Mint, at the Bureau of
Engraving and Printing, where the impact on bank note production
will be substantial, at the Federal Reserve Banks, which will need
to adjust considerably their capacity for processing notes and coins,
as well as draw down their inventories of one dollar notes, and at
commercial banks and retail establishments.
Eighteen months, as S. 874 provides, would not be enough time
for this planning, production, and reorientation. The Board believes
that any legislation should provide at least 36 months.
Our second concern is with the requirement in S. 874 that the
Federal Reserve discontinue ordering and paying out one dollar
Federal Reserve notes immediately upon introduction of the one
dollar coin. The length of time in which the Federal Reserve must
pay out both coins £ind notes would be a function not only of the
Mint's production capacity, but also variables such as the substi-
tution rate of dollar coins for dollar notes, and the public's demand
for two dollar notes, which cannot be predicted accurately in ad-
vance.
The Board believes that any legislation should give the Federal
Reserve freedom to adjust the timetable for discontinuing the issu-
ance of one dollar notes within a period of 2 years following the in-
troduction of the new coin, perhaps accompanied by an instruction
to accomplish the transition as quickly as possible.
Moreover, beginning in 1996, Treasury and Federal Reserve will
begin a multiyear introduction of new designs for Federal Reserve
notes that will be completed with the introduction of the newly de-
signed $5 note in about 1999. It would be preferable that these im-
portant changes not occur contemporaneously with the introduction
of the dollar coin.
In summary, if Congress judges that the balance of consider-
ations weighs in favor of replacing the note, it should adopt legisla-
tion as promptly as possible that would establish dates in the fu-
ture for introducing the new one dollar coin, say in about 3 years,
and for no longer issuing one dollar notes, say within 2 years after
that.
In that way, both the public and private sectors would have a
sound basis for beginning immediately to plan for the change.
Thank you very much, Mr. Chairman.
The Chairman. Thank you, Mr. Kelley.
Mr. Diehl.
STATEMENT OF PHILIP N. DIEHL, DIRECTOR, U.S. MINT
Mr. DiEHL. Thank you, Mr. Chairman, for your invitation to
present the Treasury Department's position on S. 874, legislation
eliminating the dollar note and mandating the production of a new
dollar coin.
I find myself in the ironic position of being a bureau head that
is opposing legislation that would give me significant new resources
8
and manpower at a time in which there are very few departments
of the Government that have that opportiinity.
The Chairman. That's imusual. You don't want to do these
things?
Mr. DiEHL. Excuse me.
The Chairman. You don't want to do these things? You'd be in-
dispensable.
Mr. DiEHL. I think I owe you an explanation for why I am not
following the expected line.
The Chairman. You owe Senator Grams one. But go ahead.
[Laughter.]
Mr. DiEHL. I will provide it to him at the same time, gladly.
The Treasury Department opposes the legislation for three rea-
sons.
The American people overwhelmingly reject the — —
The Chairman. Now let me ask you something. The Treasury
Department has taken a position?
Mr. DiEHL. Yes.
The Chairman. OK
Mr, DiEHL. The Treasury Department opposes this for three rea-
sons.
The American people overwhelmingly reject substitution of a dol-
lar coin for the dollar note, and for that reason, they are likely to
resist attempts to force its circulation.
Second, proponents have greatly overstated potential savings and
have ignored potential risks associated with substituting a dollar
coin for the dollar note.
Third, the United States Mint cannot produce the dollar coin
mandated by this legislation in the time zdlowed.
I begin, Mr. Chairman, by reminding this distinguished Commit-
tee that the Treasury Department has mounted two unsuccessful
attempts to launch dollar coins in the past 25 years — the Eisen-
hower dollar of the early 1970's and the Susan B. Anthony in 1979.
After 15 years, the Mint and the Federal Reserve still have some
280 million of the original 857 milUon Susan B.'s in their vaults.
Since the failure of the Ike and the Susan B., the American
consumer has not warmed toward a dollar coin. Public opposition
to eliminating the dollar note is ardent. Repeated polls over the
past 5 years show that Americans prefer a dollar note over a dollar
coin by a margin of 4:1.
S. 874, like similar measures in recent years, eliminates the dol-
lar note. Sponsors of this legislation know Americans will reject a
dollar coin for a paper dollar if allowed a choice. They know the
Susan B. failed to circulate primarily because Congress persuaded
Treasury not to eliminate the dollEir note, as initially planned.
I believe the sponsors of S. 874 are to be commended for stepping
up to the plate knowing the unpopularity of abolishing the green-
back.
However, abolishing the dollar note will not be sufficient to force
circulation of the doUsir coin over broad public opposition, because
there's an alternative to a dollar coin — ^that's the $2 note, which the
Federal Reserve will return to circulation upon eliminating the dol-
lar note.
9
Whether through inertia, preference, or outright defiance of an
unpopular Government mandate, the American people can simply
substitute the $2 note for the dollar note and continue to use quar-
ters as they do today.
Mr. Chairman, there's clear evidence that's exactly what they
will do. An Opinion Research Corporation survey conducted this
year for the National Consumers League found that a large major-
ity, 64 percent of their respondents, would use a $2 note over dollar
coins.
Moreover, there is a lesson to recall from our experience with the
Susan B. Anthony.
During the launch of the Susan B., Congress's will to abolish the
Greenback faded when it heard from angry consumers, constitu-
ents, and media who opposed the attempt to force circulation of an
unwanted coin by denying people the dollar note.
In turn. Congress persuaded Treasury not to proceed with with-
drawal of the dollar note, and the Susan B. failed as a result.
The American people do not want this coin. Our resolve to abol-
ish the note is not fixed in the stars. Contrary to conventional wis-
dom of dollar coin advocates, there's a convenient alternative to the
dollar coin in the form of the two dollar note, an alternative that
will doom the attempt to force the acceptance of a dollar coin.
In addition, Mr. Chairman, we believe that some of the advocates
have overstated claims about cost savings and other benefits re-
sulting from replacing the note with a dollar coin. Their claims are
based on lower production and recycling costs over a coin's 30-year
lifespan compared to a lifespan of 17 months for the note.
GAO studied this issue in 1990 and 1993. Their latest estimate
is that over a 30-year period, average annual savings would be
$395 million a year, in mostly off-budget revenue, by substituting
a dollar coin for the dollar note.
Multiplying this figure times five, and using private studies they
have commissioned, proponents of the dollar coin have claimed po-
tential 5-year savings of $2 billion or more.
We agree that, in the long run, this proposal could produce sav-
ings, significant savings, if the American people could be forced to
accept a dollar coin.
However, given the public's well-documented resistance to a dol-
lar coin, there's substantial evidence that this effort will fail. Not
only would the Government realize no savings. It would incur sub-
stantial costs in producing the coins, and in disposing of them once
the experiment fails.
Moreover, we are concerned that proponents have greatly exag-
gerated the near-term, 5-year savings potential of a dollar coin. Be-
cause of front-loaded costs and back-loaded savings over the first
5 years, CBO concluded the total scorable savings over the first 5
years would be only $100 million, compared with advocates' claims
of $400 million a year.
It should be noted that the CBO estimate does not reflect the
production timetables and other specifications mandated in S. 874.
Rather, their estimate is based on a "generic" dollar coin proposal.
We believe that even this low CBO estimate of $100 million over
5 years probably overstates the real savings attributable to a dollar
coin.
10
The CBO estimate overlooks several significant appropriated
costs related to production of a new dollar coin and return flow of
circulating Susan B's.
For example, the CBO estimate does not reflect what we esti-
mate to be a $20 million public relations campaign to support
eliminate of the dollar note, an estimated $23.4 million in capital
expenditures in the first year alone in preparation to produce new
dollar coins, and $25 million in production costs that must be ap-
propriated for the first 5 billion coins.
^1 those expenses must be funded with appropriations beginning
with next year's budget in order to produce the new dollar coin
under the terms of this bill.
To put this into perspective, please note the attached cost esti-
mate that I've included in my testimony.
Our analysis indicates that imder current law, the Mint would
require an additional appropriation in this year's pending appro-
priation bill of $23.4 million for next year, and $72 million over the
next five years.
Costs of complying with the terms of S. 874 would be signifi-
cantly larger than that, though, because the timeline of S. 874 is
much shorter than what we based our estimates on.
Mr. Chairman, proponents of the dollar coin have not only exag-
gerated the savings potential of a dollar coin. They have ignored
substantial risks and cost of failure inherent in this proposal.
When the Susan B. failed 15 years ago, the Mint had produced
857 million of them, and we carried over 500 million of them in our
vaults for many years.
S. 874, however, requires a much faster ramp-up of production
for a new dollar coin than was the case with the Susan B. Anthony,
because the dollar note would be eliminated simultaneously with
introduction of the dollar coin.
For example, under the provisions of S. 874, we estimate that the
Mint will need some three billion dollar coins in stock 18 months
after enactment in order to fill the pipeline. We further estimate
we will need 6 to 9 billion coins within 36 months of enactment to
replace the current stock of dollar notes now in circulation.
If the attempt to force circulation of the dollar coin fails under
this timeline, we will not know it until late into the 36-month pe-
riod. Therefore, we will not have 500 million unwanted dollar coins
on our hands as we did 15 years ago. We're likely to have more
than ten times that number.
Failure to force circulation of the new coin will not only mean
there will be no savings fi-om eliminating the dollar note. It will
mean there will be no opportunity to recover the costs of producing
the dollar coin.
Moreover, neither the Mint nor the Federal Reserve Bank has
storage capacity for billions of dollar coins. We will be required to
rent private, secure storage vaults to warehouse the unwanted
coins until a decision is made to melt them down or otherwise dis-
pose of them.
Finally, if Americans reject the dollar coin and simply substitute
the $2 note for the dollar note, we will see a rapid increase in de-
mand for quarters for change-making purposes to augment the $2
note.
11
However, our production capacities will be stretched to the limit,
and it will be very difficult to quickly produce additional quarters
to meet this demand, and regional shortages could ensue.
Mr. Chairman, our third objection is one of physical compliance.
S. 874 calls for the Treasury to introduce a new dollar coin and
to cease issuing dollar notes within 18 months of enactment. The
coin is required to be golden in color with metallic and anti-coun-
terfeiting properties similar to existing clad coinage.
The Mint simply cannot produce sufficient quantities of this par-
ticular coin to assure a smooth transition in 18 months as con-
templated in this legislation.
We will require at least 30 months to buy and install necessary
coin production and material-handling equipment. I note that the
Federal Reserve has called for an even longer transition of 5 years,
citing the complexity of a new dollar coin, uncertainty in gauging
its public demand, and the importance of not issuing a dollar coin
at the same time the Fed is completing issuance of new designs for
paper currency.
We also have significant doubts that our private-sector coin strip
manufacturers have adequate capacity to produce the quantity and
quality of coin strip necessary for the Mint to comply with the
terms of the bill.
Moreover, we will need a new alloy of gold color. This require-
ment extends our production timetable while we research and de-
velop the optimum alloys.
Mr. Chairman, I'd like to end with a historical note that may
shed some light on why I believe the future of our Nation's cur-
rency lies elsewhere than with the dollar coin.
In the decades before the Civil War, U.S. coinage alone became
inadequate to the demands of commerce in our growing Nation. As
a result, a multitude of local and State banks filled the void by is-
suing their own currency, which traded at face value in the vicinity
of the issuer and at deep discounts, if at all, elsewhere.
By 1860, the currency market was in chaos, and financial re-
quirements of the Civil War led Lincoln's administration to issue
our first national currency.
Today, a multitude of financial houses and other private inter-
ests issue their own high-tech and low-tech forms of currency —
debit cards, smart cards, and similar tj^pes of E-cash, or electronic
cash, creating an electronic Tower of Babel in the market place.
These cards "trade" only on the technology of the issuing institu-
tion and cooperating institutions.
There is no universal form of E-cash, just as there was no uni-
versal form of currency before the Civil War.
Unlike Lincoln, we face no urgent national crisis today. But I be-
lieve we are rapidly approaching the point at which market effi-
ciency may well demand the production of a universal card that
can be used as a substitute for coinage.
But here we are today, at the end of the 20th century, attempt-
ing one final time to force circulation of the oldest technology of
commerce known to mankind.
This is not how we should be investing the leadership and finan-
cial resources of this Nation. Instead, we should be identifying the
American people's interest in emerging Third Wave forms of cur-
12
rency and defining the appropriate role, if any, of the Federal Gov-
ernment in the evolution of this technology.
We should be looking at the future of our economy and to the
role of money in that economy, Mr. Chairman, not repeating the ef-
forts of the past.
Thank you again for this opportunity. Ill take any questions you
may have.
The Chairman. Thank you, Mr. Diehl.
Before we start our questioning, we've been joined by Senator
Kerry.
Senator Kerry, did you have any opening statement?
OPENING COMMENTS OF SENATOR KEERY
Senator K^erry. Not really, Mr. Chairman. I appreciate the hear-
ing.
I was just sitting here thinking that if a Democrat had intro-
duced this 10 years ago, it would probably be accused of being a
great communist plot to undo the coinage of America.
The Chairman. You've got to be careful now. There's a Repub-
lican and a Democrat sponsoring this legislation.
Senator Kerry. Well, I know. But I said, originally introduced it.
[Laughter.]
I realize now we're across the lines. But Trent Lott has started
the Save the Greenback movement, so we're going to have a bipar-
tisan effort to keep America whole here.
I just am concerned, as a number of us are, with the experience,
and I want to thank you for what I think has been very cogent tes-
timony this morning regarding some of the issues.
Clearly, there's a legitimate question which I'm sure Senator
Grams will raise, and others, as to whether or not within some ap-
propriate framework of time and an adequate public relations cam-
paign, which I believe was absent with the Susan B., as well as
with the simultaneous phase-out, which didn't occur, whether that
changes the dynamic. That's a legitimate question.
But I basically share the view that you've expressed here that
there is no great advantage, particularly given the nature of the
change in the marketplace today.
I think your last comments were perhaps the most important of
all in some regard. We ought to think very carefully about where
that takes us.
I also think that there is not yet, Mr. Chairman, a sufficient ex-
amination of the additional costs that may accrue and how those
play out in the economy in terms of potential inflationary impact
from the spin-off costs for changing over vending machines and all
the attendant costs and what that means to a certain sector of our
economy that is very dependent on that kind of transaction in the
market place.
I think that those things need to be looked at very carefully.
But I do think that the Treasury has raised, as it appropriately
ought to, the most salient quest? ens here and I thank them for
doing that and express my own deep reservations, even opposition,
to the notion that this maices sense or that it will produce the sav-
ings advocated.
13
I might add, in the production of the current paper, which is not
really paper. There's no wood product in it. It's a cotton recycling —
versus the mining that will take effect of ore. There's a certain en-
vironmental consideration here, too, in that regard.
I think when you take it all in its context, I am not sure that
it's something that we want to proceed forward on.
Thank you, Mr. Chaiirman.
The Chairman. Thank you. Senator.
Mr. Diehl, let me point out to you, I think you've made a number
of very valid — as has Mr. Kelley — points concerning the amount of
time between enactment of the bill and introduction of a coin.
But given that, I am certain that the sponsors of the bill did not
write this as something that is sacrosanct. As a matter of fact, I'm
certain Senator Grams will address that.
I think we have to look at it as it relates to an impediment that
can very easily be dealt with, and would be dealt with. So there's
nothing magic in 18 months. I just wanted to make that point, I
think that it's very interesting that you do touch on something that
we have to consider in terms of estimates. The fact is, probably,
that the outlay costs, et cetera, for the estimates in terms of the
savings, throw the figure of $2 billion plus over 5 years, into some
disarray and the total would probably be substantially less. But I
think you'd probably admit that over the second 5-year period of
time, it would probably be pretty accurate and you'd hit your $2
billion in savings over the second 5 years. Would you agree with
that, Mr. Diehl?
Mr, Diehl. Well, my understanding is, and Fm certainly not the
expert. You have the experts here from CBO and GAO who can an-
swer that question better than I can. But my understanding is that
in terms of on-budget savings, you don't hit around $150 to $200
million a year until the 15th year or so.
The Chairman, 15th year? Is that what they estimate?
Mr. Diehl, That's my recollection. But, again, I would rely on the
expertise of GAO and CBO.
The Chairman. We'll get to them because I don't want to prolong
this and I want to get the panel moving.
It just seems to me that you're right in saying that the savings
estimate may be a little high in the first 5 years.
If you have a program and want it to succeed, it seems to me
that if you introduce the coin, the only way it can be successful is
to withdraw the paper equivalent from circulation, then once we
undertake that task with a good deal of speed, opinions will
change,
I don't think we should be for or against something in response
to results of an opinion poll. It always seems to me that's the
wrong way to run Government, although we all do it.
[Laughter.]
What should I say? I'm going to say it a different way.
[Laughter.]
Or not say it. In my case, I should not say it.
[Laughter,]
I think you have made some valid points, but, in fairness, they
can be dealt with and you have to look at this business about with-
14
drawing the dollar bill. That action alone, would eliminate the
kinds of problems you had with the Susan B. Anthony.
No. 1, there was no educational program, as you mentioned.
No. 2, there was no withdrawal of the dollar bills.
No. 3, 1 think we will be looking at the future of electronic money
and services. As a matter of fact, our counter-parts in the House
are holding a hearing later this month, which will probably be
quite constructive on the same topic. Just last week we sent a let-
ter to the Congressional Budget Office requesting a study of these
progressive products and their impact on the U.S. financial indus-
try. It's very, very, very interesting.
I think, if anything, that might mitigate in favor of moving for-
ward on the dollar coin situation, given the fact that you're going
to be using less of whatever it is, whether it's paper dollars or
coins. That is obvious.
No. 4, I don't know what the poker players of America would
like, whether they want to keep the greenback or go to the coins.
With that. Senator Grams.
[Laughter.]
Senator Grams. Thank you very much, Mr. Chairman,
Mr. Diehl, I'd like to first start out talking about the costs in-
volved and the projected savings.
You stated that the dollar coin would cost the Treasury money.
Governor Kelley has testified that the dollar coin will save as much
as $456 million a year, $2.8 billion over the first 5 years.
Could you tell me, and Governor Kelley, which assumptions used
by the Fed that you would disagree with?
Mr. Diehl. First of all, I want to make it clear, as I stated in
my testimony, that over the longer term, I will agree that there are
substantial savings that can be had if we can force the circulation
of the dollar coin and the withdrawal of the dollar bill.
There are no savings to be had if we end up simply substituting
the $2 note for the one dollar note with a dollar coin having been
rejected by the American people.
That being said, I think that there is a great deal of confusion
about cost savings estimates because of the large number of
sources of savings and whether we're talking about on-budget sav-
ings or off-budget savings.
When I say that there are only $100 million worth of scorable
savings in the first 5 years, I am citing the CBO study that came
out in February of this year.
The reason why there are such large differences between the on-
budget and the off-budget savings numbers is because the concept
of seigniorage, which I prefer not to get into a great deal of discus-
sion of because it's one of the most esoteric and complex accounting
issues in the Federal Government.
Seigniorage, which is the profit from the production of coinage,
is not considered on-budget. It's only the interest saved as the re-
sult of seigniorage that ends up being on-budget.
Therefore, the up-front costs of producing a dollar coin, which are
loaded into the first 5 years, are all in that 5-year initial budget
window, and you don't begin reaping the benefits of any seignior-
age savings until that savings accrues in later years.
15
That's why it's not until you get into the second decade, the sec-
ond 12 years or 15 years, that you begin hitting that $395 miUion
estimated savings, off-budget savings, that's contained in the GAO
report.
Now another source of savings estimates has been the dollar coin
advocates themselves from some private studies that they've had
done.
Those estimates are much higher than the $456 million which
GAO and the Federal Reserve have come up with. Those range up
around $800 million a year.
I'm not saying that the GAO and Federal Reserve estimates are
wrong. What I'm sajdng is that there's a great deal of confusion
and in that confusion, an opportunity has been presented to exag-
gerate the short-term benefits that can come from passing this leg-
islation.
This legislation has been before Congress in similar forms for 8
years. It's never drawn a hearing either by this Committee or by
the House Banking Committee, to my knowledge.
It's received much greater interest this year, and we saw the mo-
mentum building this year, I think, because some of the dollar coin
advocates were claiming that there were $2 billion worth of savings
over 5 years. They weren't saying that it was scorable savings, but
they were claiming that there was $2 billion worth of savings,
nonetheless.
The implication was that the $2 billion would be available in the
5-year or the 7-year budget window that all of us are struggling
with right now.
Nothing could be further from the truth. We're talking about
maybe $100 million in savings under the CBO scoring, $100 million
in savings over the first 5 years.
So it's very modest, the savings that are attributable to this pro-
posal.
Senator Grams. We're going to be talking to CBO about that a
little later, the savings and the controversy.
Mr. Kelley, how about your opinion about this?
Mr. Kelley. I think the savings are real and I think they're
there.
I would agree with Mr. Diehl that they will start out lower than
they will be later on. The/re going to build up.
Our study that arrived at the $2.28 billion in savings over 5
years attempts to include those front-end costs as best we were
able to understand them.
I think you'll find, Senator, when you get into these cost esti-
mates that we and others have made, there are a number of as-
sumptions that have had to be made there. I think that ours are
quite reasonable and we are, in my view, certainly in the ballpark
on where these savings are going to occur. They occur in two basic
ways.
The first is in the basic cost of the operation, the cost of produc-
ing these two different types of pieces of currency. Then far more
importantly, the subsequent servicing costs which differ greatly
over a 30-year period of time.
The second tranche of savings comes from the well-documented
fact that there winds up being substantially more coins that need
16
to be issued than there are bills that need to be issued for a given
level of activity in the economy, and the fact that there will almost
certainly be substantially more coins issued indicates that the pub-
lic sector, the Government, will be able to save the interest costs
not expended if that same amount of money had had to be bor-
rowed in the conventional credit markets, because essentially,
these are monies that would be made available for the Grovemment
to spend through the seigniorage process and would not have to be
borrowed and interest paid thereon in the public credit markets.
So there are two different types of savings. We have attempted
to include both of those and have attempted to also include clear
front-end costs that the Mint would incur, and I'm sure to some ex-
tent also, Engraving and Printing would incur, and the Federal Re-
serve Banks would incur.
We would be glad to provide to you and to your staff for their
analysis the rather sophisticated and extensive computation that
went into this $2.28 billion.
But I do have a high level of confidence that it's in the bgillpark,
even for the first 5 years, and that it does have the phenomenon
of building up from a relatively modest base in the first and second
year to more substantial figures in the out-years.
Senator Grams. I know that GAO will testify later this morning
that they back up your figures and say they are reasonable.
Mr. Kelley. Yes, sir. They have examined our model and my un-
derstanding is that they accept those numbers. Of course, they'll
testify to that themselves.
Senator Grams. I want to move on, but I wanted to ask Mr.
Diehl just one quick question.
Do you oppose a dollar coin ever? Is there any time in the future
you see a dollar coin being reasonable and if not now, when?
Mr. Diehl. I certainly don't want to be in a position of trying to
speak for Treasury until the end of the Republic. My position is
that we oppose the concept of a dollar coin. The Treasury Depart-
ment opposes the concept of the dollar coin.
Senator Grams. Despite the other 25 industrialized countries
now have moved to that?
Mr. Diehl. I'd like to address that because I think that
Senator Grams. I'd like to move on, but just quickly, so the other
questions can be posed.
Mr. Diehl. I think you've raised a very good point regarding the
success of other nations in making similar substitutions. I think
there are four crucial differences between what we would attempt
here in the United States and what has been done in other nations.
One is that the scope of the task in the United States simply
dwarfs what any other, or even all the other nations have done
combined. We're talking about between 6 and 9 billion coins that
would have to be produced in a very short period of time, many
times larger than all of them combined.
Also, they must be produced in a relatively short period of time
because all indications from the experience of these other nations
is that you must make this transition very rapidly.
I think one of the reasons why this 30-month timeline is written
into your bill is that it recognizes the experience both with the
Susan B. and with other nations' attempts to make this transition.
17
In order to overcome the initial opposition and resistance of the
population, it must happen very quickly.
The problem in the United States is, in order to make it happen
very quickly, you have to produce enormous numbers of coins. No
other country Ims faced that problem. The risks associated with
that is that tf it fails, as it has twice before — no other country has
that experience, either, of failing twice before in this attempt — the
costs are much larger here than they are elsewhere.
The Chairman. Yes. But Mr. Diehl, in fairness to the analogy of
what took place before, there was no attempt to withdraw paper
money and then bring in coinage. Let's recognize that. When you
talk about the necessity of having this timeline and bringing coins
in rapidly — if you can only put in X-dollars at a particular point in
time, you simultaneously withdraw, you only withdraw X-dollars.
As you withdraw — it just seems to me, and I haven't done any
study — as you withdraw the paper currency, obviously, the coins
are going to have acceptance whether some people might dislike
them, et cetera. So let's be balanced. I understand opposition, but
I think it has to be reasoned and balanced. I'm sorry, but I thought
I'd have to make that observation.
Senator Grams, please continue.
Senator Grams. The last point before I move on.
Mr. Diehl. The last point is that I think that Americans tend to
be more indep>endent-minded about unpopular Government man-
dates than are the citizens of other Western nations. I think they
are more likely to resist an unpopular Grovemment mandate, espe-
cially in this political environment.
There's a significant difference between who makes the decisions
in the United States versus who makes them in most other West-
em democracies. In most Western democracies, it's an unelected
bureaucrat, if you will, in a central bank who makes the decision,
who's not held accountable. In the United States, under the Con-
stitution, that decision rests with Congress, and it's reversible.
Senator Grams. I just wanted to mention, too, that I've been
sought out by people who have opposed this and they've come up
and after about 5 minutes of being able to talk with them, they've
walked away either saying that, well, maybe the dollar coin
wouldn't be bad or even support it. So I think you underestimate
that, too. I've had people very much opposed £ind then in 5 minutes
saying, well, maybe it is a good idea and maybe the time has come.
So I hope we give the Americans more credit.
The Chairman. Senator Faircloth.
Senator Faircloth. Thank you, Mr. Chairman.
It's true that Americans have opposition to rules and regulations
of the bureaucrats. But it took them 40 years until November to
say it at the election box.
Mr. Kelley, we talk about — what we've dealt with here this
morning is the cost of producing the coin, the possible savings in
and out. In my view, this is a pretty minor mark of what we're
really dealing with here. What would be the savings to the Amer-
ican public? More and more, we're coming to vending machines.
There's very little today that you can't buy at a vending machine
of some description.
18
What would be the savings to American business, to productivity,
to consumption, if we had the convenience of a dollar coin and the
ease with which a vending machine can utilize and accept a metal
dollar coin, as opposed to the necessity of putting your dollar in
and getting the coin and then going to the machine?
So I think that the savings that we're focusing on is somewhat
minutia, as compared to the potential savings for the American
public and business. Would you address yourself to that?
Mr. Kelley. That may well be the case, Senator. I have not seen,
and certainly, we have not attempted to conduct a formal study
that would indicate the extent of those savings. But I'm very sure
they would be there.
In all candor, I would have to say that there are some offsetting
costs that would go along with it as well. How those would balance
out is hard to say.
I might take this opportunity to comment on how we would per-
ceive the impact of this change-over, if it were to occur, on the price
level generally.
It's difficult to see how this change would have much of an im-
pact one way or the other on the price level across the country gen-
erally.
At the macro level, while you're quite correct that there's a wide
variety of products available through vending machines today, if
you think of all of the products that are sold in this country, thou-
sands and thousands of different kinds of items that go into the
creation of price indexes, there are relatively few of those that are
sold through vending machines.
Second, there is a tremendously competitive private business en-
vironment in the country. I think that it would be very difficult for
anyone to successfully jack up prices in one type of distribution
channel when there were other perfectly readily available distribu-
tion channels for the same product that were not attempting to do
that.
So I have difficulty seeing how there's going to be much in the
way of a price impact, broadly speaking, one way or the other.
I'll take one quick second to illustrate how that might work. In
the basement of the Federal Reserve, there's a bank of vending ma-
chines. I'm told that they used to sell candy bars for 55 cents
through those vending machines.
We opened a little storefront store just 50 feet down the way. We
had some vacant space down in the basement. Among other things,
they sold candy bars for 50 cents and lo and behold. The price at
the vending machine went down to 50 cents in short order.
So competition is alive and well. There are varieties of different
distribution channels available. I think that that would tend to be
self-righting in the general effect on the price level.
Senator Faircloth. Well, I can't imagine that, whether we have
the coin or not, it's going to affect the price of the commodity at
the vending machine. It's just a proven fact that dollar bills don't
work in vending machines.
Mr. Kelley. That's right. There would be that convenience fac-
tor, certainly, sir.
/
Senator Faircloth. I don't know whether you remember or not,
but one time, we went to a gasoUne vending machine with dollar
bills.
All of the people that rode dirt road sports around, and country
people, found out that you could put a piece of tape to it, run it
in, and pull it back out.
[Laughter.]
So they used the same dollar many times to buy the same gaso-
line with. So dollar bills don't work on vending machines.
Mr. Diehl, you say if we eliminate the $1 bill, the American pub-
lic will have an instant love affair with the $2 bill.
Now I don't know the terminology I want to use, but about 10
or so years ago, Treasury printed a lot of $2 bills. They tried to
force them into circulation.
Is that not right?
Mr. Diehl. 'mat is correct. Back in 1976.
Senator Faircloth. All right. Well, aged time runs fast. So it
was close to 20 years ago.
Mr. Diehl. Yes. ---
Senator Faircloth. But you put on a campaign to popularize the
$2 bill.
Mr. Diehl. We were about as successful at that as we were with
the Susan B. Anthony.
Senator Faircloth. It was a total failure. People wouldn't take
them, and would look at them funny.
Mr. Diehl. Well, part of the problem was, though
Senator Faircloth. Why do you think now that they're going to
all of a sudden love the $2 bill if they didn't 20 years ago?
Mr. Diehl. It's a very practical reason. When you look in a
change drawer in a cash register, there's no place to put a $2 bill.
But there will be a place in the cash register draw for a $2 bill
as soon as you eliminate the $1 bill. The $2 bill will fit very con-
veniently where the $1 bill was. I think it will fit in the same spot
in the pocketbook where the $1 bill is.
The Federal Reserve will distribute the $2 bill based upon de-
mand from the Federal Reserve banks and the local banks. We will
not face the same challenge that we faced in 1976, because there
will be a spot available for the $2 bill through this proposal by
elimination of the $1 bill.
Senator Faircloth. The only surprise I heard this morning was
that the Federal Government had trouble printing money. I
thought that was the one thing that we could do.
[Laughter.]
I thank you.
Mr. Kelley. There's a difference between printing money, sir,
and making coin.
In terms of printing money, the Bureau of Printing and Engrav-
ing, particularly with the opening of its new plant in Fort Worth,
has plenty of capacity to print paper currency, and they're doing so
very efficiently.
Stamping out coins from metal is a little bit different process and
involves different kinds of production considerations, which Mr.
Diehl can certainly address. But they're really two different prob-
lems.
20
Senator Faircloth. But the one thing, I don't often agree with
Senator Kerry. The dollar bill is made, I understand, totally from
cotton waste, because I've had a number of manufacturers from
North Carolina that sell the waste from the production of textiles
to the paper manufacturers.
So it is produced from a byproduct.
Thank you, Mr. Chairman.
The Chairman. Did you know that?
Mr. Kelley. Oh, yes. But I didn't know about the North Carolina
connection.
The Chairman. Lauch Faircloth amazes me continually with
these tidbits.
[Laughter.]
It's absolutely amazing.
Senator Grams.
Senator Grams. I would just like to wrap this up by asking about
the timetable.
First, Mr. Diehl, basically, you're talking about the $2 bill. I
think it would become more prominent, of course, when the change
was made, if there was a dollar coin to replace the dollar bill.
But I think you've gone through the same trouble I have. A lot
of times you go there and you don't have change for parking me-
ters. They don't take dollars.
It's just hard. There are so many things that we use coinage for
today, and with the cost of everything being higher, and there's so
many times when the average American family just need for it to
be convenient to have the dollar coin.
Do you agree that it could be a convenience, despite.
Mr. DiEHL. Every time I go to a Washington, DC, parking meter
and I have to have all those quarters in hand, there's no question.
There's a convenience in having a dollar coin in those situations.
I think that the question is:
Does the convenience overcome the natural resistance of the American citizen to
change in their currency?
I think that's where the question lies.
Senator Grams. I think our closest comparison would be Canada.
There was similar resistance there. They aren't used to being told
what to do by a single regime or anything. But they have over-
whelmingly now been in support.
In fact, I think census show that if they can get a $2 coin to re-
place the $2 bill, they would like to do that.
So here it goes from vast opposition in Canada to vast support.
Do you think that would be similar? We did make a lot of mis-
takes with the Ike and the Susan B.
Mr. DiEHL. Yes.
Senator Grams. Other countries around the world have said,
they've looked at the United States to see the mistakes we made.
Mr. DiEHL. Yes, that's right.
Senator Grams. And have been successful in response. Have we
learned anything? I think we have and I think another attempt
might be very successful.
Mr. DiEHL. Well, I think there's no question that withdrawing
the dollar bill from circulation, as your legislation does, gives us a
21
better chance than we had with either the Ike or the Susan B. to
make it work.
My point is that I do not beUeve that it will be sufficient to make
it work. It's certainly not the slam-dunk — if you'll excuse the ex-
pression— ^that the proponents of this legislation have all along
said, as though night follows the day that if you withdraw the dol-
lar bill from circulation, the dollar coin must circulate.
My central point is that, with the $2 bill available as a sub-
stitute, that's not necessarily the case.
Senator Grams. I think there's also been studies, and we'll prob-
ably get at it later, that show that when you say there would be
an increased demand for quarters, other countries with similar de-
nominations of coinage have found a reduction in the demand for
such things as quarters. So rather than asking for four quarters in
change, they've taken the dollar coin.
Mr. DiEHL. No, that's absolutely right, if the dollar coin cir-
culates.
Senator Grams. Yes.
Mr. DiEHL. That's exactly right.
Senator Grams. One thing — go ahead, Mr. Kelley.
Mr. Kelley. Sir, I have very little question that the dollar coin
will circulate if it's at all well designed and if, most particularly,
the bill is withdrawn.
We need a unit of currency at approximately the level of a dollar.
The next one smaller is a quarter. That's four multiples down. The
next one bigger is a $2 bill, which is twice. There needs to be a unit
of currency at that level.
I think it's interesting, I might add, that in most, if not all, of
the larger economies, the industrial economies, the first level at
which you will encounter paper currency is somewhere around $8
or $10. Everjrthing under that has gone pretty well to coin at this
point. People seem to be comfortable after a break-in period with
that sort of a configuration.
Senator Grams. Mr. Diehl, just finally, to wrap this up.
It seems like a lot of the opposition to the four points that you
were mentioning was the actual introduction, minting and produc-
tion of getting the dollar coin into circulation. I think that all can
be accomplished and taken care of. If you take away that, you've
taken away 75 percent of your opposition and then you rely on
studies sajdng that the public would resist it.
But do you believe that extending it to at least 30 months or, as
Mr. Kelley has suggested, 36 months, given the appropriate phase-
in time or an unveiling, so to speak, that would be even more suc-
cessful than the 18-month projected?
Mr. Diehl. Well, I think, following Mr. Kelle/s recommendations
of the 30-month, 36-month initial transition, and then another 2-
year transition instead of a flashcut in which you stop introducing
the dollar bill at the same time you begin introducing the dollar
coin, I think that makes this at least theoretically do-able.
Unless these changes are made, the Mint simply cannot comply
with the requirements of this bill as it stands today. We have a
fighting chance of producing the number of coins that we would
need in order to make for a smooth transition and give the experi-
ment a decent chance of success. But what I'm also saying is that
22
I have very strong doubts that we can make it a success, even
under those altered conditions.
Senator Grams. Put the West Point mint back into production in
New York.
[Laughter.]
The Chairman. Excellent idea.
Senator Grams. Thank you.
Mr. DiEHL. Thank you.
The Chairman. I want to thank you, Mr. Kelley, and Mr. Diehl,
for your thoughtful presentations.
Mr. DiEHL. Thank you.
Mr. Kelley. Thank you.
The Chairman. We'll call the next panel: Mr. Stevens, the Direc-
tor of the Federal Management Workforce Issues of GAO; and Mr.
Blum, Deputy Director of the Congressional Budget Office.
Mr. Stevens, Mr. Blum, I'm going to ask you to summarize your
testimony. We'll take your testimony as if read in its entirety and
enter it into the record.
Mr. Stevens.
STATEMENT OF L. NYE STEVENS, DIRECTOR, FEDERAL MAN-
AGEMENT WORKFORCE ISSUES, GENERAL GOVERNMENT DI-
VISION, GENERAL ACCOUNTING OFFICE, WASHINGTON, DC
Mr. Stevens. Yes, sir. I will be very brief, Mr. Chairman.
We have extensively studied the issue of coinage conversions in
other countries and we've carefully analyzed the economic impact
of coinage on the Government accounts. As the result of over 5
years of stud5dng this, we've issued a report that makes a strong
recommendation that the Government should reintroduce the dol-
lar coin. But it makes the qualification, "if properly managed," and
that is an essential condition.
The benefits of such a decision are substantial. It restores our
coinage to the structure that it more or less resembled in the
1960's. It puts us in line, as has already been testified, with all the
other major industrial countries of the world.
It would add to the convenience of using vending machines, fare
boxes, telephones, and so forth.
But most important, in our calculation, is that it would save the
taxpayers $456 million a year over the next 30 years, on the aver-
age. The figure of $395 million has been quoted. That was what our
estimate was in 1993. It's been updated by the Fed. We've checked
those figures and we agree with their reasoning and their assump-
tions.
You've heard from several other witnesses. The production sav-
ings from this are really undisputed. The coins cost 8 cents to
produce, but last about 17 times as long as the comparable bill,
which costs 4 cents to produce.
The principal source of savings, however, is interest avoided on
debt that is in turn avoided on the 92-cent profit or seigniorage
that the Government realizes on the difference between the coin's
production cost and its value in the market place.
We believe that our estimate is a conservative one. We use a
1.5:1 ratio of substitution of coins for dollars, which is lower than
any other country we studied has experienced.
23
We did assume that, as Mr. Diehl said, there would be an in-
crease in use of $2 bills. About 25 percent of the $1 bills now in
circulation would be replaced by $2 bills. We also assumed 100 per-
cent return of dollar bills, which is unlikely to be the case, but any
that weren't returned would add to the savings as well.
But there are also two major disadvantages. The first is that it
is not a quick-fix for the deficit. Much of the savings is not scorable
under the Budget Enforcement Act. Seigniorage itself has been de-
fined as an off-budget receipt. We don't count that in our calcula-
tions, but we do count the interest that is avoided from use of sei-
gniorage instead of borrowing the same dollars.
Little of this comes in the first 5 years, which is CBO's horizon,
when basically all of the production costs are borne. But the sav-
ings do grow steadily over time and the fact that in the early years,
there would be less than $456 million is offset by the fact that in
later years, there would be substantially more than that. The $456
million a year is an average figure.
The second disadvantage is certainly public opinion, as it cur-
rently exists. It's now negative to the idea, by a large margin. But
we also found in our work in other countries that that was true in
all of them as well, and that it could be handled through careful
planning, through sophisticated commimications with the public.
These countries have learned from our Susan B. Anthony experi-
ence and I think we could do so as well.
In Canada, we actually commissioned a Gallup poll there to fol-
lowup on some work they had done before putting trie coin out. We
found that 5 years after the introduction of the coin, there were
only 18 percent of the Canadian people who felt that it had been
a bad idea. And now they have made a firm decision to go ahead,
Senator Grams, with the $2 coin because the $1 coin has been a
success there.
In our 1990 report, we listed five essential conditions to a suc-
cessful conversion. We still believe they are valid preconditions to
our recommendation.
First, as has been mentioned, the dollar bill would have to be
eliminated.
Second, there would have to be a reasonable transition period. I
agree with the other witnesses, that 18 months is probably too
short. Thirty months seems more reasonable.
The coin would have to be well designed and readily distinguish-
able from other coins, which could be done by a different color.
A sophisticated public awareness campaign would be needed. It
was absent in the Susan B. Anthony case.
Finally, and perhaps most important, there would have to be a
sustained administration and congressional commitment to with-
stand what would be an initial negative public reaction to the
move. We can anticipate that. It would require Congress and the
Administration to lead rather than follow public opinion.
But we believe that if it's well managed, it would be successful.
Thank you, Mr. Chairman.
The Chairman. Thank you, Mr. Stevens.
We've been joined by Senator Carol Moseley-Braun, original co-
sponsor of the legislation. Senator Braun has been participating at
the Finance Committee hearings until now, which I'm going to
24
leave for in a short time. They've been deciding the issue of Medic-
aid and Medicaid reform.
Senator Braun, do you have an opening statement you'd Uke to
make?
OPENING COMMENTS OF SENATOR MOSELEY-BRAUN
Senator Moseley-Braun. I do, Mr. Chairman. However, I'd Uke
to submit it for the record. We have a number of witnesses and we
need to have an opportunity to hear from them this morning.
The Chairman. So ordered. We'll put your statement in the
record as if read in its entirety.
Mr. Blum.
STATEMENT OF JAMES L. BLUM, DEPUTY DIRECTOR,
CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC
Mr. Blum. Thank you, Mr. Chairman.
In the interests of time, I will make just a few comments be-
cause, in fact, I have very few differences from the discussion that
preceded in the first panel and from Mr. Stevens's remarks. We're
all working off of the same songsheet, I think, as far as the facts
involved.
The Congressional Budget Office does not take a position on this
issue, since we don't make recommendations of policy to the Con-
gress. Our job is simply to give you the best budget and cost infor-
mation we can.
The point I want to make is that the variation in estimates of
savings, as cited in the first panel, between CBO, the Federal Re-
serve, and the General Accounting Office essentially arise from dif-
ferent perspectives on how to measure these costs.
Since the Congressional Budget Office deals with the Congress
on the annual budget process, our focus necessarily is the 5-year
budget window — or, in this case, a 7-year budget window under the
recently adopted budget resolution.
Similarly, we only focus on those effects that actually appear in
the budget and get scored. We're also concerned with scoring bills
as they emerge from committee and what can and cannot be count-
ed there.
That does lead, unfortunately, to different numbers being thrown
around. But I wanted to assure you that, in essence, there isn't any
difference in the basic underlying assumptions about what's going
on.
The only other point I wish to highlight from my statement is
that the critical factor (I think it has been discussed at length this
morning) is the timeframe — the lead time that's necessary to de-
sign coins, get them produced, and so forth, and the amount of time
that's needed for the conversion from the use of notes to the dollar
coin.
Those are really the critical assumptions, and how they play out
will have effects on what the budget scoring will be.
But in the long run, there's no question that substantial savings
would accrue to the Federal Government.
Thank you.
The Chairman. Well, Mr. Blum, I want to thank you for your co-
gent summary. You have, I think, spelled out, very clearly, the dif-
25
ferences between the numbers used in the scoring for budget pur-
poses, and the numbers that may not be scored.
But essentially, there are large savings to be achieved as a result
of going to the dollar coin.
Thank you.
Senator Grams,
Senator Grams. Mr. Blum, I would just like to say that you talk
about your estimates that you have made, and you're probably
using a different set of scenarios or numbers. But would you feel
that, if anything, your numbers are on the conservative side and
you're comfortable with that, that basically, bottom line, that there
would be savings to the Treasury?
Mr. Blum. There's no question that if the dollar coin is success-
fully introduced and the dollar note is withdrawn from circulation,
there will be substantial savings.
But, as was pointed out in the first panel, those savings will ac-
crue and increase down the road. There's not likely to be much that
you would see in our 5-year budget window or even a 7-year budget
window. Beyond that, there would be very substantial savings for
the reasons that have been pointed out. In terms of production and
the processing costs, it's undoubtedly less expensive to have coins,
because of their durability, than notes. And there would be less
need to borrow in the form of interest-bearing securities from the
public because the public would be holding more Federal debt, if
you will, in non-interest-bearing coins.
Senator Grams. Are the savings estimates by the Federal Re-
serve and the GAO flawed in any way by the inclusion of the inter-
est avoided through the seigniorage?
Are these savings real, I think is what we want to know?
Mr. Blum. Yes, the/re real.
Senator Grams, They can be complicated. They're hard to talk
about. Basically, there are tremendous savings that you're not fig-
uring in. Is that correct?
Mr. Blum. Well, the estimate that's in my statement, which is
the estimate that we included in our deficit reduction volume, is,
as Mr. Diehl pointed out, a generic estimate. We had to make up
some assumptions. Those assumptions included a 30-month lead
time before the conversion would go into effect.
On the other hand, they also included a conversion lasting 5
years rather than the 2 years that Mr. Kelley spoke about earlier.
So there could easily be differences that would show up on our
budget scorepad.
Senator Grams. Your scorepad also figured in the cost, the addi-
tional cost of introducing the coin. Is that correct?
Mr. Blum. Yes, it did.
Senator Grams, The $79 million plus dollars that was estimated.
Mr, Blum, The $72 million that Mr, Diehl spoke about earlier.
Yes, we did take that into account. He's absolutely correct. Those
are additional monies that would, under the current budget proce-
dures, have to be appropriated to the U,S, Mint,
It turns out that in the budget, those are offset dollar for dollar
by budget convention, so there is no bottom-line effect on the defi-
cit. The savings that we showed in our testimony are simply the
increased Federal Reserve earnings that would occur because they
26
would have lower costs from having to purchase dollar notes from
the Bureau of Engraving and Printing.
Senator Grams. Briefly, even though your numbers are different,
are you comfortable with the assumptions that the Federal Reserve
made in coming up with their $456 million-a-year?
Mr. Blum. Yes, we would be comfortable.
Senator Grams. You would be comfortable with those assump-
tions.
Mr. Stevens, you mentioned a couple of things. Properly man-
aged, we've learned, as I think the other countries have from the
mistakes we made with the Ike and the Susan B.
The main, I think a good argument is the convenience. Until you
try it, you don't know. Although there is some opposition, I think
it's been proven around the world. In fact, I had one person talk
to me that they had come back from Europe, and spent a month
there, and didn't realize that they had all the coins and how con-
venient they were. He came to me specifically to say, I was kind
of ambivalent on the coin issue until I was there. He was very
strongly supporting that because of the convenience he found.
So I think that's one thing that's underestimated and I think
that's why Canada found the huge resistance almost evaporate
once the coin was introduced.
Then the basic savings to the taxpayer. We're trying to find every
dollar that we can for education and nutrition programs and every-
thing else. If we can save, whether it's $100 million or a billion dol-
lars, I think it would be better spent in other areas.
But also, you had some reservations, the public opinion and ev-
erything else.
What is the suggestion, then, if we're going to do this, to properly
manage that?
Mr. Stevens. Yes. Basically, proper management. I think it
means a fairly sophisticated public awareness campaign, which
was not done in the SBA case, but which was done in all these
other countries.
Usually, there's a champion or a spokesman appointed who pre-
sents the case and responds to questions, appears on talk shows.
It should be preceded, probably, by a much more sophisticated
public opinion poll than has been done so far, mostly by opponents
of the matter, and to learn what are some compelling arguments
that the public would respond to.
So far, I believe, none of the polls have really presented the ques-
tion in the context, "if the Government were to save x-billion dol-
lars, would you favor this?"
Senator Grams. Yes. Right.
Mr. Stevens. That is probably the most relevant question to ask.
Senator Grams. I think those polls have been done and it shows
that it almost flip-flopped from 4:1 against to almost 4:1 in favor,
if a poll like that has been presented exactly in those terms.
Mr. Stevens. The best poll, I think, is the experience that the
foreign countries have had. They've all gone through this. They
started out with initial public opposition. There were some fairly
snide editorials in the newspapers. It passes in a few months and
they move on to other matters.
27
Senator Grams. I think the media was against the Susan B., as
Mr. Diehl, I think, had mentioned. But I think a lot of the edi-
torials, in The New York Times, USA Today, and all other, a lot
of major newspapers have come out with editorials in favor.
So, a lot of times, if you've got the media on your side, it's an
easier sell.
Mr. Stevens. That may be a change.
Senator Grams. Thank you very much.
Mr. Stevens. Thank you.
The Chairman. I may have to reconsider if they come out in
favor.
[Laughter.]
Senator Braun.
Senator Moseley-Braun. Thank you very much.
Just to pick up where Senator Grams kind of left off and talking
about public perception because I frankly believe that a lot of what
we're dealing with here has to do with public perception.
Putting aside for a moment polling and polling data and focus
groups and the like, what do you suggest we could do or should do
in terms of public awareness and in terms of allaying fears in the
public that somehow or another, going to this coin would mean that
people have less money or that there's something wrong, that they
have less value, rather, in the assets, in the resources that they
own?
Mr. Stevens. I think, basically, the Government needs a cham-
pion. It needs a leader of this. In fact, our recommendation is that
the legislation somehow provide for the Treasury not to oppose it,
but to in fact support it. I think once the decision is made, the
Treasury will have to support it because if it is a failure, I think
Mr. Diehl's explanation that the consequences would be quite se-
vere is accurate.
But understanding what the public's attitudes are, what are the
persuasive arguments among the many cases that can be made,
which are the most persuasive with the public?
No one has really done that in the prospect of developing a cam-
paign of public awareness and persuasion. That work would have
to be done.
We have estimated that this should be about a $20 million in-
vestment. Less than a million, if that was spent in promoting the
Susan B. Anthony. Put that $20 million up front. We've included
right in our calculations of the cost and benefits. That's a cost, but
it's very much worthwhile.
Senator Moseley-Braun. In terms of the public awareness cam-
paign to which you refer, would you agree that development of a
climate of opinion regarding this issue is probably the single most
important thing that we can do at this point?
Mr. Stevens. I think what worries the Treasury most is the
prospect that public opinion would be so negative at the outset,
that Congress would reverse the decision and leave the Treasury
with billions of coins and that we would have to go to reverse sei-
gniorage.
The Chairman. You think we would do that?
[Laughter.]
28
Mr. Stevens. I think the Treasury is concerned about that, Mr.
Chairman. And I agree that the consequences would be
The Chairman. I agree, you understand. We've got to be very
careful. We learned in law school, sometimes you say something in
jest, but it's in the record. But please, Mr. Stevens.
Mr. Stevens. I honestly do not think that at the time that the
coin is actually introduced, that public opinion would be in favor
of it. I think you would still get public opinion polls that say, this
is a lousy idea. They had them in Canada.
Senator Moseley-Braun. I'm sorry? This is what, now?
Mr. Stevens. But after a little experience
Senator Moseley-Braun. I didn't hear your last statement. I'm
sorry, Mr. Stevens. I didn't hear your last statement. What did you
say?
Mr. Stevens. That I think there would be still negative polling
numbers at the time the coin was introduced. I think whatever you
did up front wouldn't turn the situation around.
Therefore, the actual experience of using the coin instead of the
dollar bill, of finding the $2 bills are readily available and accept-
able, that there's a place for them in the cash registers, all that
goes into not so much a perception as an actual behavioral adjust-
ment that would mitigate the negative public attitudes.
Senator Moseley-Braun. In terms of behavioral adjustment, you
studied closely the Canadian experience. And post-introduction,
what was the polling or what was the experience there?
Mr. Stevens. The Canadians had done a good deal of polling
themselves in preparation for introduction of the coins. We have
that data. When it was introduced and successfully so, they didn't
do any more because they didn't really need it.
We went back and took the same set of questions and hired the
same pollster, who was Gallup, and did a nationally projected opin-
ion study. We found that while the numbers had been skeptical
and negative, even at the time the coin was introduced — in fact, at
the time the coin was introduced, it was the highest negative.
But 5 years later, there were five times as many people who felt
more favorably towards the coin.
Senator Moseley-Braun. Five times.
Mr. Stevens. Five times as many. In other words, the people
who felt that it had been a good idea were outnumbered by those
who felt it was a bad idea, 5 to 1. The actual opposition was down
to 18 percent in Canada nationwide. This was in 1993.
Since the trendline was going down, I wouldn't be surprised if we
did it again and it would even be lower than that today.
Senator Moseley-Braun. Was any similar polling done in Great
Britain?
Mr. Stevens. Not that we have had access to. If there was, I'm
not aware of it.
Senator Moseley-Braun. Final question. Do you have — and I
don't know if this question was asked before I came in — but regard-
ing seigniorage. Is it considered to be an outdated concept or a real
one at this time?
Mr. Stevens. I'm sure Mr. Blum will want to comment on that.
I would make the point that seigniorage is real money. The 92-
cent profit is money that the Government gets credited to its check-
29
ing account and can buy aircraft carriers or pay for foodstamps or
do whatever Government does with its money. It's real money.
However, it is an off-budget receipt, by long-standing budget con-
vention. There would be a temptation, if it were not so, for the Gov-
ernment to make major, major reductions in the national debt sim-
ply by coining huge coins and calling them something, putting
them out there and saying the national debt is gone. That's basi-
cally the reason underlying that.
We don't dispute that convention. But because real money is
saved — that is, money that does not have to be borrowed, and we
do count the interest that is saved in the future on the money that
was not borrowed because some expenditures were covered by sei-
gniorage.
Senator Moseley-Braun. Mr. Blum.
Mr. Blum. I would point out, if I may, that seigniorage is indeed
real. Technically, it is considered a means of financing the deficit,
which means the profits that come to the Government are a sub-
stitute for borrowing from the public. So in essence, instead of hav-
ing to issue interest-bearing securities to finance the deficit, one
could use seigniorage toward that end. It's not a huge amount at
present, but it would grow if the dollar coin were introduced.
Senator Moseley-Braun. And the estimated savings?
The Chairman. $2.7 out.
Senator Moseley-Braun. There's a difference, though, between
GAO and
The Chairman. Well, yes. Mr. Blum explained the reason.
Senator Braun mentions and raises the question as it relates to
why the differences in numbers. Mr. Blum has indicated that as it
relates to scoring purposes for the budget, that's the differential,
the technical scoring. But that their numbers are essentially the
same, that it comes out to $2.4 billion, or $2.7 billion over — what
is it, over a 5-year period of time, the savings?
Mr. Blum. Yes.
The Chairman. Or $2.2 billion. It's over $2 billion.
Mr. Blum. The point I would make is that most of those savings
really accrue after you've made the conversion.
There was one other point that I meant to make in response to
Senator Moseley-Braun's question about seigniorage.
The seigniorage effect comes from the basic assumption that the
public would demand to hold more dollar coins than they now hold
in dollar bills. That's why we get these longer-term savings by hav-
ing reduced borrowing from the public and, therefore, reduced in-
terest costs.
If there were simply a one-for-one conversion, those seigniorage
effects or interest savings that both GAO and the Federal Reserve
have talked about would not materialize.
So it hinges critically on the assumption that there would end up
being a higher total value in coins and more $2 notes in circulation
than the $6 billion worth of one dollar notes that are in circulation
now.
Senator Grams. Isn't that estimate about 2:1 for the coins to the
dollar bills?
Mr. Blum. 2:1 for
Senator Grams. About 6 billion.
30
Mr. Blum. Yes. But it also includes an assumption that about 25
percent of the one dollar notes would end up being substituted for
$2 notes. The 2:1 applies to the remaining 75 percent of the dollar
notes presently in circulation.
Senator Grams. You make collector items out of the dollar notes
and they never get redeemed.
Mr. Stevens. The assumption we wound up with in our esti-
mate, Mr. Grams, was 1.5:1, which was in fact lower than any
other country experienced. We believe it's very conservative.
Senator Grams. Thank you.
Senator Moseley-Braun. No, no, no. I appreciate your question.
One of the things you learn early in law school is don't ask ques-
tions you don't have the answer to. I don't have the answer to this
question, so I may be on real slippery ground.
On what do you base that assumption, the assumption that the
same number of coins would be held as dollars?
Mr. Blum. You mean that more coins would be held than dol-
lars? That's based on foreign experience. Mr. Stevens can attest to
that.
Senator Moseley-Braun. OK. I didn't have the answer to that
question, but I still wanted to explore it. So it is based on the expe-
rience of other countries.
Mr. Stevens. It's been confirmed in every other country. I think
some of the following witnesses may address the reasons for it.
One of them probably is that vending machines do tend to collect
money. They're not collected every day. And also, there's a certain
kind of heaviness to coins that prevents them being transported
back and forth to banks quite as readily or as cheaply as dollar
bills are. So the banking system winds up holding some more of
these. You may want to ask the Banking Association president
about that.
Senator Moseley-Braun. Right. Thank you. I have no further
questions.
Senator Grams. I just have one quick question for Mr. Blum
there. When we talk about — Mr. Stevens said a 1.5:1, which was
lower than any industrial country. Did you do a 1:1 in your study
in the seigniorage, or did you have higher estimates, too, for pre-
sumptions of savings?
Mr. Blum. For purposes of our deficit reduction volume, in com-
ing up with this generic estimate we didn't have to make that as-
sumption. That assumption only comes when you get into the ques-
tion of whether there would be long-term interest savings.
Senator Grams. But you didn't figure that in.
Mr. Blum. We didn't figure that in. We didn't have to figure it
in. But we certainly would take that into account in any cost esti-
mate that was more comprehensive.
Senator Grams. OK. Thank you very much, gentlemen.
The Chairman. I would just like to make this observation, par-
ticularly after my two colleagues have examined and gotten the
witnesses to indicate that, on the first two panels, that these are
real dollars that we're talking about in terms of savings. Whether
they begin to accrue at the $400 million annual level of the third
year or the fifth year or the eighth year after its implementation,
the fact is that over a 30-year period of time, we're talking about
31
an average of about $400 million a year that the taxpayers will
save.
This Committee, which is in the process of examining our ex-
penditures, in all areas of our activity, which are mass transpor-
tation, banking areas, and housing, will have to reduce expendi-
tures over a period of time by some $2.4 billion.
We serve on other committees involving areas of education, of de-
cent, affordable housing, of transportation, and of Medicare or Med-
icaid. At this very moment, the Finance Committee is conducting
hearings on Medicaid and seniors are concerned.
We're talking about cutting $700 billion over 7 years.
I will say this. In fairness to this entire area, we should be con-
sidering the economics.
Sloganeering — there isn't one of us up here who doesn't under-
stand that and its use in the proper context of campaigns is fine.
But how do you say that you would give up $400 million that could
be utilized for education? Try to send a kid from a working family,
to college today, even to a State university where the tuitions are
down.
There isn't a working family in America that doesn't incur for
that student a huge loan in the end. Furthermore, we are talking
about reducing dollars for education.
I'd far prefer to find revenues in the area of $2-plus billion dol-
lars to offset that kind of cut. There are numerous areas which
would benefit from $400 million. For example, AIDS research and
cancer research, the list goes on and on.
I think maybe sometimes we overdo, convejdng our stand on an
issue, due to the position that we hold, more than just being for
something or against something because it's popular. We must not
forget that we have a duty to also educate and inform people of all
aspects of an issue.
Fulfilling that duty can be difficult sometimes, particularly if
you're debating a topic that claims to have a 4:1 public disapproval
ratio.
I'd suggest maybe that's why we're elected for 6-year terms. At
some point within that span of time opportunity sometime, we may
have an opportunity during some period of time, to take a risk in
terms of losing popularity for doing what is right and being part
of a process that educates as well.
Senator Moseley-Braun. It's called leadership.
The Chairman. Leadership. My colleague and friend, Senator
Braun, has indicated. It's leadership.
So, I want to commend both Senator Braun and Senator Grams
for bringing this legislation forward. We will probably hold more
hearings. We're just starting now. I think that's important, because
I'm certainly learning.
I had no idea of the real, potential economic benefit to the tax-
payer. If we can produce $400 million a year, again, in savings,
that's $400 million that can be better utilized. Then every year
over 30 years, that's a lot of money.
Providing the means to benefit taxpayers on that level is some-
thing you can look back on and say, that's a job well done as it re-
lates to moving decisively on an issue and demonstrating leader-
ship.
32
I want to thank you, Mr. Blum, and Mr. Stevens, for your testi-
mony.
Mr. Blum. Thank you.
Mr. Stevens. Thank you.
The Chairman. We'll call our third panel: Mr. William Buetow,
treasurer and senior vice president of finance, Chicago Transit Au-
thority; Mr. Clayton, president of Automatic Food Service, Inc.;
Tommy Looper, executive vice president and CEO of the Anchor
Bank, Myrtle Beach, SC; Linda Golodner, president of the National
Consumers League; Robert L. Leuver, former director. Bureau of
Engraving and Printing; and The Honorable David J. Ryder,
former director, United States Mint, president of the Ryder Com-
pany.
I thank all of our paneUsts. Thank you for your patience in being
here. I'm going to ask you to please attempt to summarize your re-
marks.
Now before I ask you to start, and we'll start with Mr. Buetow
and work left to right, I know that Senator Faircloth has a time
constraint. I do. I have a Finance Committee hearing now in ses-
sion reviewing Medicaid and the private sector interests. So I'm
going to leave.
But I know Senator Faircloth does have, I think, a question or
an observation he'd like to make to the panelists before he's forced
to leave.
Senator Faircloth.
Senator Faircloth. Thank you, Mr. Chairman. I just had a
thought. I do not in any way negate or belittle the fact that the
savings to the Government appears to be something like $2.5 bil-
lion over several years.
But I think the real issue here is what does it mean to the indus-
try and to commerce and to the productivity of the manufacturers.
I would have no idea, and I'm sure that some of you can tell us,
but how much of the business of this country is done through vend-
ing of some matter.
I'd like — maybe we'll start with you, Mr. Clayton, to tell us what
it would mean to the industry. We know what it would mean to the
Government. Tell us what it would mean — I know that you're in
the vending business. Tell us what it would mean to the industry.
Mr. Clayton. It would mean a great deal to us because of the
reduced costs in purchasing equipment. The cost of a bill acceptor
on a machine adds up to $400 of additional costs to each piece of
equipment. It also makes it much easier for our customers to use
the machines because the acceptance rate of a dollar coin or a coin
is 99 percent. The acceptance rate, if you've ever tried to use bill
acceptors, is questionable.
We, as an industry, are already prepared to accept the dollar
coin. We've been investing in coin-handling equipment since the
Susan B. Anthony coin was presented in 1979. Any progressive
vendor that's looked to the future has already been buying through
those years coin-handling equipment that would accept readily
today a dollar coin of the same size and diameter as the Susan B.
Anthony.
Senator Faircloth. May I ask you a question?
Mr. Clayton. Yes, sir.
33
Senator Faircloth. How much commerce, how much of the
GNP, how much business goes through vending machines a year in
this country. How many dollars? Do you have any idea?
Mr. Clayton. I'm not certain of that, but I think the figure is
$26 billion.
Senator Faircloth. $26 billion of our economy is handled
through vending machines.
Mr. Clayton. Yes, sir. So we're probably the largest user of coin-
age in this country.
Senator FAIRCLOTH. There's no question that the vending indus-
try is totally in support of this?
Mr. Clayton. Wholeheartedly, yes, sir. At this point in time, 80
percent, approximately 80 percent of the equipment on the street
today of the food and refreshment vending industry is capable of
taking a like dollar coin as the Susan B. Anthony. So we've been
ready for a long time.
Senator Faircloth. $26 billion.
Mr. Clayton. Yes, sir. I could stand to be corrected on that.
That's approximately right, I'm told.
Senator Faircloth. Mr. Looper, half of that goes through Myrtle
Beach?
Mr. Looper. A good part of it.
[Laughter.]
Mr. Ryder. Mr. Faircloth.
Senator Faircloth. Sure.
Mr. Ryder. Can I point out one thing that I think should be
noted? And I've got a chart.
This comes to us by way of a company called COINLUX, which
is the second largest manufacturer of this type of equipment. What
this is and what this represents is a device that goes inside the
vending machine. It's the coin acceptor that accepts the coin.
Currently, there is not a vending machine in this country that
can give a dollar coin out as change. So when the Committee con-
siders the bill and the Treasury is forced to introduce a $2 bill, the
current vending machines that accept $1 coins cannot give out a
$1 coin in change, meaning COINLUX says that it's going to cost
about $2.6 billion to retrofit the machines that are currently in our
country.
That is an enormous cost that I think is going to be passed right
back on to the consumer. For example, the small vending machine
companies, the small guys, not the big guys. They can ill-afford to
pay for those kinds of costs on the machines that they own as a
small business because this type of cost — for example, this device
is going to cost somewhere in the neighborhood of $275. A $2 bill
changer is up around $300. That cost, if forced on the small vendor,
I think will put him out of business.
Mr. Clayton. Sir, I would like to address that.
I'm a small vendor. My father started this business in 1952. My
five children now work with me in this business. We are a local
company which started from the ground up.
I am not one of these big guys. The bulk of the people in this
industry are not the big guys that these people keep talking about.
34
We represent over 250,000 people that are employed in the vend-
ing industry that are primarily small, independently owned busi-
nesses all across this country.
I've been in this business for 30 years and it really upsets me
that someone is going to come in and tell me what my business is.
The fact is that if we can accept the dollar coin, why do we need
to pay back a dollar coin? If the purchase price exceeds a dollar,
they put in $2 and we can readily pay back the change difference.
Our need is for a circulating dollar coin of the same size and di-
ameter as the dollar coin, as the Anthony coin.
Senator Faircloth. The same size as?
Mr. Clayton. As the Anthony coin. We can readily accept a dol-
lar coin of the same size and diameter as the Anthony coin that
is in existence today.
Senator Faircloth. Let me ask a question here that maybe some
of the people who could have answered it have left.
We say that the reason — I'll ask you. Senator Grams or Senator
Braun.
The reason the Susan B. Anthony coin was not accepted is be-
cause the dollar bill stayed in circulation. In other words, there
was nothing wrong with the Susan B. Anthony coin for vending
machines or whatever.
Mr. Clayton. We can accept the Susan B. Anthony coin. That
is true. But it was a poorly designed coin and it was very easily
confused with the quarter.
Senator Faircloth. All right.
Mr. Clayton. That was the biggest problem we had with that.
Senator Faircloth. I was going to ask, if we withdraw the dollar
bill and print more Susan B. Anthonys. But if that is the case, it
was a poorly designed coin and the wrong size
Mr. Clayton. Not necessarily size, but in color and feel.
Senator Faircloth. All right.
Mr. Clayton. It was very easily to confuse with a quarter.
Senator Faircloth. I thank you so much. I'm sorry I do have to
leave and I thank you, Senator Grams and Senator Braun.
Mr. Clayton. Thank you, sir.
Senator Grams. We'd like to hear the opening statements and
again, we'll go from left to right, starting with Mr. Buetow.
Again, if we can, because of the hour, keep your opening remarks
brief, we'd appreciate it. Thank you.
Senator Moseley-Braun. Senator Grams, before you do.
Senator Grams. Yes.
Senator Moseley-Braun. While Senator Faircloth is here. Sen-
ator Faircloth, Mr. Looper handed me this. He's a former lUinoisan,
by the way. Which demonstrates the different coins.
This may be part of the problem. The Susan B. Anthony looked
like the quarter. But the Canadian — ^this is the Canadian coin.
Mr. Looper. Correct.
Senator Moseley-Braun. Yes, that's the Canadian coin. The Ca-
nadian coin is a different color, you can see. So you can easily dis-
tinguish a different color coin, a different configuration. Whereas,
this was more difficult to distinguish. Of course, that's the penny,
the nickel and the dime.
35
Fm sorry, Senator Faircloth. I didn't know if you had had a
chance to see this provided by one of the witnesses.
Senator Faircloth. There's some talk of they're having trouble
getting rid of the Susan B. Anthony.
They might try discounting them.
[Laughter.]
Mr. Clayton. I wish you had time to hear my total statement
because I address that to some degree.
[Laughter,]
Senator Grams. Mr. Buetow.
STATEMENT OF WILLIAM C. BUETOW, SENIOR VICE PRESI-
DENT/TREASURER OF FINANCE, AND CAPITAL MANAGE-
MENT, CraCAGO TRANSIT AUTHORITY, CfflCAGO, IL, ON BE-
HALF OF THE AMERICAN PUBLIC TRANSIT, ASSOCIATION
Mr. Buetow. Thank you for this opportunity. I'd like to explain
that I am the treasurer and senior vice president of finance for the
Chicago Transit Authority. But I'm here today on behalf of the
American Public Transit Association, which really represents over
400 transit properties across the Nation.
I am here to speak in favor of S. 874, which allows the U.S. Gov-
ernment to issue a fully identifiable one dollar coin in place of the
current dollar bill.
I also must explain, though, I'm a 34-year transit veteran. I've
been involved in a war on currency for more years than I can state
to this panel.
But I'm also here as a taxpayer and I think my presentation will
indicate my concern for the expenditures of Government to transit,
and also the savings that are really out there for the industry that
I serve and for the company that I have worked for all these years.
The Chicago Transit Authority is one of the largest processors of
one dollar bills in the Nation. On an annual basis, we collect and
process approximately $123 million in one dollar pieces of currency.
Our ability to collect and process one dollar bills has improved over
the years. That's an undeniable fact.
However, the issuance of a one dollar coin will eliminate the
labor-intensive problem of processing dollar bills. We process
money. Machines count money.
The labor-intensive nature that will be eliminated from a readily-
identifiable coin will save the agency that I serve approximately $2
to $4 million annually.
On the national level, independent research had indicated $124
million will be saved within the transit industry alone by the issu-
ance of this fully identifiable coin.
In situations like this, and I hope I can have your OK to do this.
Sometimes a picture speaks louder than words.
This photo is indicative of all counting areas within transit or
any counting area in the country that has to burden itself with
processing currency.
We have a commodity that everybody wants. It's cash. The thing
that's not in any statement, and certainly, it should be part of any-
body's thought process is that any industry that deals with cash,
does have a commodity that everybody wants.
36
It's very easy to steal paper currency. It's very hard to steal coin.
It's certainly a category not addressed but has to be understood.
Even coming into your building today going through your metal
detectors. They monitor coin. But not currency. It has to be part
of what we talk about, but certainly, it's something that no one
wants to talk about because we're all sensitive to the issue.
It's a very, very difficult statement to make. It's not in my pre-
pared text but theft of currency has to be identified. I just picked
this up from hearing some of the verbiage on that issue.
But the statement that I'd like to say involving transit itself is
the cost I just gave you of $123 million annually for transit, there
really are more cost savings within the transit industry that can
be achieved when other expenses, such as equipment purchases,
token sales, are added to the cost of accepting and handling one
dollar bills, all of this has to be considered.
First, I would like to explain the potential savings in the area
of processing dollar bills.
The cost to process $1,000 worth of one dollar bills at the CTA's
counting operation facility, is approximately $22 per $1,000 of one
dollar currency.
The cost to process the same amount of coin drops dramatically
to $1.65. It's an absolutely phenomenal difference and I think you'll
find it's standard throughout any industry that has to handle coin
and currency.
The difference for the large cost difference in processing is due
to the fact that handling paper currency naturally is much more
labor-intensive. Coin processing is more efficient due to the higher
degree of technology and availability of counting machines.
To date, our experience has shown that no technology exists to
fully process paper currency. The difficulty is enhanced by the Fed-
eral Reserve's requirement that all paper currency when delivered
be faced when stacked, face up.
By this I mean again that the dollar bill portrait of Greorge
Washington has to be face up.
Again, there is no technology available to adequately process cur-
rency, so our money-handlers must stack and face the bills by
hand. You'll find this in every counting house in the Nation, again,
a processing procedure.
With the general philosophy of deficit reduction becoming more
evident in the Federal Grovemment, transit authorities like the
Chicago Transit Authority must look at new ways to get the most
out of our limited resources. The issuance of the dollar coin will not
only provide processing cost savings. It will give transit properties
the flexibility to provide better fare structures.
Over the years, the transit authority has been limited in its own
fare structure because it has taken a number of steps to avoid the
problems associated with dollar bills.
That's a nationally known fact.
The problem with dollar bills first became a monumental prob-
lem when the CTA's fare was raised to 95 cents in 1992. Customers
flooded our fare boxes with dollar bills and we encountered a mul-
titude of jammed fare boxes.
It should also be noted that at that time, we had more than
5,000 buses on any given week sidelined by jammed fareboxes due
37
to currency problems. We were never equipped, and the industry
basically still is not, from the other testimony you've heard, to ac-
cept dollar bills in any specific category.
Our solution was to increase the level of technology of our
fareboxes so dollar bills could be accepted. This required a capital
investment of $15 million, just to fight the war on currency at that
particular time. The cost of purchasing, maintaining and updating
this technology over the years is a capital expense shared by the
Federal Government.
That's a situation that has to be known when you're a public
agency. We are subsidized as most transit properties are.
As a result of the increased dollar bill usage, the Chicago Transit
Authority began emphasizing use of our transit token. In essence,
it has been our board's policy to make the tokens available at a dis-
count as a means of enticing customers away from using one dollar
bills.
That's the only reason a token exists, other than quick entry.
In other words, we print our own coin. You pay for that at the
present time. It's an absolute known fact that you should address.
Again, keeping in mind that tokens, like coins, are less expensive
to process. Unfortunately, we have also incurred other costs associ-
ated with token usage.
Every time we issue tokens on the street, everybody basically has
independent vendors. A commission is paid. It accelerates the costs.
That's not identified in my processing costs.
From that standpoint, it costs me about $2.5 million to make the
tokens available within the metropolitan operating district of the
city of Chicago, so our ridership base can handle that situation.
Again, cost savings to the Government itself and certainly to the
area I serve.
Finally, if the issuance of a dollar coin becomes a reality, the
ability of the Chicago Transit Authority to assume its usage in
fareboxes and turnstile is not a significant problem.
I agree with my colleague two chairs down.
There will be, of course, some minimal costs associated with the
change, but the savings in handling and processing costs would
more than make up for any initial change-over process. An added
benefit is that a coin increases the ability of passengers to board —
they're certainly a quicker entry — than those with the dollar bill
and the current dollar bill problem we have.
I firmly believe at that point an identifiable — again, identifi-
able— dollar coin is an absolute necessity in order for us to exist
in the world today. Transit properties in other countries, especially
in Canada, have had success with the dollar bill. The transit indus-
try, including the Chicago Transit Authority, fully supports the is-
suance of a fully identifiable dollar coin to replace the dollar bill.
Senator Moseley-Braun. Excuse me.
Mr. BUETOW. It is smart. It is efficient and it needs to happen.
Senator Moseley-Braun. Mr. Buetow, didn't you misspeak? You
said foreign countries have had success with the dollar bill.
Mr. Buetow. I'm sorry. The foreign countries have had success
in the change-over to the dollar coin.
Senator Moseley-Braun. OK. That's what I thought.
38
Mr. BUETOW. It was Canada that went to the same gold coin, the
loonie. It's readily acceptable. I apologize. Thank you. It is a major
factor.
I have been to their counting facilities in Toronto. It's an abso-
lute joy to watch coins being processed in boxes and packed for dis-
tribution and redistribution, where, in essence, currency, on the
other hand, had been a problem.
From the standpoint of closing this, as I said, transit is definitely
in favor of this situation. At the present time, it makes absolutely
no sense to us in transit, and I speak for myself personally, that
the dollar bills that I've talked to you about processing, the $123
million that this company that I represent handles. Those dollars
that are funneled at teller acceptability through banks and into the
Federal Reserve, to watch between 60 and 80 percent of those dol-
lar bills be destroyed and not recirculated at a cost, again, to the
Government that subsidizes the Federal Reserve System, is insan-
ity to me, and it always has been. Where coins are bagged,
weighed, completely auditable into the Federal Reserve, back out
for circulation — ^again, the currency problem in this country has to
be identified. Transit is fiilly supportive of this issue.
Thank you.
Senator Grams. Thank you, Mr. Buetow,
Mr. Looper. Again, I remind you of the time.
STATEMENT OF TOMMY E. LOOPER, EXECUTIVE VICE PRESI-
DENT AND CEO, ANCHOR BANK, MYRTLE BEACH, SC, ON BE-
HALF OF THE AMERICAN BANKERS ASSOCIATION
Mr. Looper. I will be as quick as I can.
I'm pleased to be here to testify regarding S. 874, the One Dollar
Coin Act, on behalf of the American Bankers Association.
ABA members represent approximately 90 percent of the com-
mercial banking industry's total assets and about 94 percent of the
ABA members are community banks with assets less than $500
million.
The Anchor Bank is a $380 million community bank with 15
branches, headquartered in Myrtle Beach, SC. My duties at the
bank encompass oversight of the operations area, including the tell-
er functions.
While we support the efforts to reduce the cost to Government,
we do not believe this goal will be realistically advanced in S. 874,
and the ABA cannot support that proposal at this time.
We believe the estimated savings are overstated and in addition,
these budget calculations don't take into account the substantial
private-sector costs which would be incurred and the new oper-
ational problems created for banks and others.
We have serious concerns about the introduction of the new coin
and that it would place a new financial and operational burden on
the banks and our customers. We believe that the American public
would again reject the one dollar coin to which they are opposed.
We have worked over the last few years to reduce the burdens
imposed by Government on our industry and this legislation just
adds new burdens without any added benefit to the banks or con-
sumers.
39
Now should the coin be approved, it is possible to minimize some
of the projected cost increases and problems created by the new
coin by working with Congress and the Treasury to lower the possi-
bility of failure of the dollar coin and to reduce the operational im-
pact to a more manageable level.
The requirements are tough and unless the5^re met, we fear the
new one dollar coin would meet with the same end as the Susan
B. Anthony.
The necessary requirements for successful introduction of the
dollar coin are:
That the coin replace all the $1 bills in production and especially
the $1 bills within the Federal Reserve System;
That $1 coin production and stockpiles are sufficient to accommo-
date demand before the $1 bill is discontinued;
That the $2 bill be printed and stockpiled in sufficient quantities
to accommodate demand before the $1 bill is discontinued; and
That the $1 coin be the same diameter, thickness, and weight as
the Susan B. Anthony $1 coin, but with distinguishing characteris-
tics from the Susan B. Anthony.
Just as a personal aside, I think if you're messing with the coin
and currency system, we ought to really look at doing away with
the penny at the same time because a lot of the concern of the
banking industry is the additional weight, transportation costs and
handling costs involved with the coin itself.
Some of that could be obviated by doing away with the penny at
the same time.
But the three primary issues for the banking industry are the ex-
pected rejection by the public of the proposed coin, the cost of retro-
fitting and acquiring new equipment to handle these dollar coins
in the banking industry, and in the ongoing operational issues re-
lated to the weight of the proposed coin, the transportation costs
and so forth.
We believe that the mandating of the termination of the $1 bill
against the public's wishes, as demonstrated in several polls, would
be viewed as one more example of Big Government in Washington
dictating to the American public what they can and can't do.
It's also clear that there would be some economic impact on the
retail economy because of the increased transportation costs associ-
ated with moving heavier coins around and these costs would be
passed through to retail institutions who use the coins, and ulti-
mately to the public.
At our bank, we currently charge less than our cost for rolled
coin to our customers. Any increases in cost of transportation and
handling would definitely have to be passed on to our customers.
We believe that the budget savings and other benefits to the
Government may be overstated, while the cost to the public could
be substantial and the chances for successful introduction are lower
than the proponents of this legislation may lead us to believe.
Bankers most of all fear a reenactment of the Susan B. Anthony,
where a large portion of the banking industry retrofitted and
changed their equipment to handle these coins and then they were
suddenly withdrawn after we incurred significant expenditures to
accommodate them.
40
In fact, we still have to deal with the not infrequent appearance
of an Eisenhower dollar coin in the bank. And asking banks, retail-
ers and the public to face a third modem dollar coin just seems un-
fair.
When the Susan B. Anthony was introduced, teller lines grew
longer because our customers were complaining. We were trjdng to
educate them about the new coin and why it was there. While
there were a few who stood in line to actually get the coins for col-
lector's items, most customers actually refused them when they
were offered in transactions. We fear that this might happen again.
Going to the retrofitting of equipment, most of our coin process-
ing equipment is electronic, manual or mechanical sorting equip-
ment. Even though some of the existing equipment is capable of
handling the Anthony dollars, and some can be retrofitted, some al-
ternative coin designs would not work in the equipment.
We favor, if the coin is minted, that it is the same size and
weight of the Susan B. Anthony.
In most cases today, we can handle the Susan B. Anthony dollar
in low volumes just by manual process in community banks.
In a survey that the Bankers Association did in 1993 at the Na-
tional Operations and Automation Conference, less than 20 percent
of the attendees there had the infrastructure in place to handle a
dollar coin in their banks, and again, I'm talking about community
banks. So there would be substantial costs.
In survejdng several ABA committees and coin-handling vendors,
we estimate that the average community bank would be required
to spend somewhere between $6,500 and $9,500 to replace coin-
sorting, wrapping equipment, cash drawers, coin racks and be
ready to handle the doUar coin.
For the Nation's 10,000 community banks, again, small banks,
these start-up costs might easily top $80 million. That doesn't ac-
count for the regional banks, super-regionals, and Nation-wide
banks. That's just community banks.
In the case of my bank, that would probably be in the neighbor-
hood of $15,000 in initial costs. That's beside the ongoing cost of
more labor and transportation to handle more weight.
We will fiilly cooperate with the Treasury amd the Federal Re-
serve if this legislation passes, but we believe that we really should
be looking more to the future. Americans began with coin money,
then adopted paper money, and we're moving in the direction of
electronic money. There's a lot of time and effort being spent there.
Expenses incurred in a coinage retrofit would divert money away
from investments into electronic payment systems.
I know most of you have read that at the Olympic games, they're
testing a smart card. So it won't be necessary for people to carry
either coin or currency in their pockets. I think in the future, we're
going to see vending machines where you walk up with a card to
pay for your purchases.
I know that Congress is working on legislation regarding elec-
tronic money right now. We just feel that is a better direction to
be moving in rather than going back to new coins.
As I say, one of the main problems we have with the proposed
coin is with the weight. If you look at the Susan B. Anthony coin,
it weighs about seven times as much as a dollar bill. Based on
41
some research we did with community banks concerning the
amount of coin and currency passing through banks, the weight of
that coin and currency could double with the introduction of this
dollar coin to replace the dollar bill.
In my bank, we did some work on the amount of weight that our
tellers have to carry from the vault to the teller line at the begin-
ning of the day. That weight would increase 50 percent if we just
replaced the dollar bill with the dollar coin.
The average weight that our tellers have to carry would go from
approximately 50 pounds to 75 pounds. That's just been to get
ready to do business in the morning.
In summary, the ABA opposes this bill as it's currently drawn.
However, if a new coin is created, the Congress and the Treasury
should adopt all of the difficult steps we consider necessary to less-
en the pain of the introduction of a new circulating $1 coin, and
to ensure it is workable.
Thank you.
Senator Grams. Thank you very much, Mr. Looper.
Mr. Clayton.
STATEMENT OF R. DAVID CLAYTON, PRESIDENT, AUTOMATIC
FOOD SERVICE, INC., NASHVILLE, TN, ON BEHALF OF THE
NATIONAL AUTOMATIC MERCHANDISING ASSOCIATION
Mr. Clayton. Mr. Chairman, I believe I'll be the only one up
here so far today that hasn't let the red light come on.
[Laughter.]
I do thank you for the opportunity to testify, and I would like to
thank Senator Frist for the record for the glowing introduction he
gave me earlier.
It was much better than the one I wrote for myself.
[Laughter.]
So he did an admirable job.
This morning, as I said, I am a small businessman. We're a fam-
ily-owned business. All five of my children do work for me within
the company.
This morning, I'm speaking for the thousands of companies like
mine, some larger and some smaller, that employ over 250,000 peo-
ple across this great country.
In the early 1960's, the food and refreshment vending was more
convenient and efficient. The primary reason for this fact was that
a candy bar or soft drink could be bought with one coin — a quarter.
You could even get change back from that quarter.
But those days are long gone. Due to inflation, the average sell-
ing price of a vended product today is 60 cents. This means you
must have a minimum of three coins to make a transaction.
Because of the inconvenience to our customers caused by the an-
tiquated coinage system, we have turned to a costly and less effec-
tive dollar bill acceptor. These bill acceptors add up to $400 to the
cost of each machine. For those of you who have tried to use them,
you have found them to be only marginally acceptable at best,
while coins are accepted 99 percent of the time.
It's been said by those who oppose the introduction of the new
dollar coin that the vending industry will take advantage of this
and raise prices. This is an absurd statement.
42
The introduction of a new circulating dollar coin would greatly
reduce our future capital outlay for bill acceptors. Additionally, we
estimate that 80 percent of the equipment on location will accept
an Anthony-size coin.
As a side note, it is very important that the new coin not change
in thickness or diameter, or our industry could lose the more than
$1 billion that we have invested to accept the dollar coin. If we
were going to increase vending prices, we would have increased
prices when we bought these expensive dollar bill acceptors.
At the present time, the Bureau of Engraving and Printing is in
the process of redesigning all U.S. currency in an effort to reduce
or eliminate the counterfeiting problem, lliey will start with the
$100 bill and work their way down to the dollar bill.
The newly designed dollar bill is projected to appear in 1999. If
this process is completed before we have a new circulating dollar
coin, we could be forced to replace every bill acceptor that we have
at a cost of hundreds of millions of dollars.
Our primary fear is that nothing will be done and we will be
back to a situation where we only have quarters. If weight becomes
an issue and pockets become an issue, the fact that you have to
carry — some people have to use coins and if you have to carry
enough quarters in your pocket to make a transaction, you will
know what weight is.
It appears to me that the need of Government and industry alike
could benefit by the introduction of a new, well-designed dollar coin
at this time.
Not only would the Gk)vemment save billions of dollars over the
next 30 years, but it could improve the efficiency of our Nation's
commerce at the same time.
Each day, over 125 million separate transactions are made in the
vending industry alone. This does not include the millions who
need coins for mass transit, toll roads or laundromats, just to name
a few. So there is an immense commercial need for a new circulat-
ing dollar coin.
As you know, the introduction of the Susan B. Anthony dollar
coin in 1979, was a disaster that has not been forgotten. The An-
thony was poorly designed. It was the wrong color, the wrong edge,
and the wrong feel. It was never accepted by the American people
or the retail industry.
The amazing thing is, as bad as these coins are, they are now
being drawn down at a rate of approximately 6 million per month.
With the ever-increasing demand, the stockpile of 273 million An-
thonys left in the Grovemment vaults will be depleted in less than
4 years. What will the United States Mint do then? Produce more
Anthony dollars? I certainly hope not.
But this fact alone demonstrates the dire need for a higher de-
nomination coin.
The dollar bill has the purchasing power of the quarter of the
1960's. Would you like to try using paper quarters? This is the di-
lemma we are faced with today.
Mr. Chairman, Members of the Committee, our coinage system
is broken and must be fixed. We urge the Committee to bring this
bipartisan issue to a favorable conclusion.
Thank you for holding these hearings.
43
Senator Grams. Thank you, Mr. Clayton, and you did beat the
red light.
[Laughter.]
Ms. Golodner.
STATEMENT OF LINDA GOLODNER, PRESIDENT, THE
NATIONAL CONSUMERS LEAGUE, WASHINGTON, DC
Ms. Golodner. Mr. Chairman and Senator Moseley-Braun, my
name is Linda Golodner. I'm president of the National Consumers
League, a national nonprofit consumer organization founded in
1899 on market place and work place issues.
We appreciate the opportunity to testify today on the issue of the
dollar coin.
I would ask that my written testimony be made part of the
record.
Senator Grams. Without objection.
Ms. Golodner. There have been few issues in which consumers
have more clearly expressed their opinion than the dollar coin.
They do not want it.
I would like to enter into the record the summary of five polls
conducted over the past year on this subject. Americans consist-
ently oppose switching to a dollar coin by a 3:1 and 4:1 margin.
In a poll conducted on behalf of the House Budget Committee, 82
percent of those surveyed nationwide opposed the dollar coin, even
if it would help reduce the budget deficit.
To be perfectly sure that the polls we had seen were current and
reflect American public perception on this issue, the National Con-
sumers League, on June 8, 1995, commissioned Opinion Research
Corporation to conduct a national random sample survey of three
questions on the dollar coin.
The survey asked:
Do you favor or oppose abolishing the dollar bill and replacing
it with a one dollar coin? If, given the choice, do you think you
would prefer to use one two dollar bill or two one dollar coins?
Then we asked, if the one dollar bill is replace with the one dollar
coin, do you think prices on such things as vending machines, laun-
dromat washing and drying machines, and parking meters, would
increase, decrease, or stay the same?
Respondents opposed legislation to replace the $1 bill with a $1
coin by a margin of 72 to 19. Nearly 6 of every 10 respondents
thought prices of vending machines products would likely increase
if the dollar coin were mandatory.
Sixty-four percent of the respondents, if given a choice, would
prefer one $2 bill over two $1 coins. Only 21 percent would prefer
to use the coins.
To my knowledge, the National Consumers League poll was the
first one to pose that last question, and the results raised the obvi-
ous question —if people will simply switch to $2 bills, what have we
accomplished by eliminating the dollar bill?
The likelihood is that people would prefer $2 bills over $1 coins
also raises the possibility that the Government could find itself
with billions of unwanted dollar coins on its hands, much as it has
already had with the Susan B. Anthony coin.
44
Coin proponents argue that public opinion is simply irrational
and that forced to use dollar coins, people would soon acquiesce to
the change. But this ignores some important facts.
I'd like to ask that I be allowed to enter again in the record, a
University of New Haven study conducted by Dr. Darryl Jenkins.
Senator Grams. Again, without objection, it will be entered into
the record.
Ms. GOLODNER. To summarize the study, Dr. Jenkins found that
if the average price of vending machine products rose by only one
percent, this would mean approximately $230 million a year in
higher prices to the public. He also found that price increases
would most severely impact low-income families, who often rely dis-
proportionately on vending machines and laundromat machines.
I don't represent myself as an expert on the impact of the dollar
coin on the U.S. Treasury. However, it's my understanding that the
Congressional Budget Office estimates the dollar coin would save
an average of $20 million a year over the first 5 years, while the
Mint estimates it would cost the Government about $22 million
over the first 5 years.
Even if the CBO estimate is accurate, one can see that every dol-
lar saved by the Treasury would come up at the expense of many
more dollars that are lost by the public.
If vending machine prices would increase by only 1 percent, that
would mean the average American would lose $10 for every dollar
saved by the Treasury.
Why would vending machine operators and soft drink manufac-
turers favor legislation that would require them to make expensive
changes in their machines?
Presumably, because they feel that they can raise prices suffi-
ciently to cover their investments and increase their profits.
Vending machine operators believe that people can see coins in-
herently less valuable than paper currency. As a result, some of the
vending machine industry people believe that they can raise prices
to a dollar with inpugnity.
For example, a vending machine operator recently stated, there's
a psychological barrier against using four quarters, even if there's
a bill changer right next to the game. That is why the editor of a
video arcade magazine wrote recently, the video game industry
would like a chance to boost play pricing across the board.
There's been discussion this morning about electronic banking
and the use of cards. Use of cards has been accepted by the Amer-
ican public. Just look at the use of ATM cards, credit cards, debit
cards, and now smart cards.
We're going to see that increase. Whether or not this legislation
passes, there will be cards that people can use for vending ma-
chines and for other small purchases.
When the public holds strong and well-documented feelings in
opposition to a piece of legislation, it seems to me that Congress
must find an extraordinarily compelling argument to override that
public opinion. I would suggest that there is no compelling argu-
ment that exists.
Congress should not try to impose this unpopular coin on an un-
willing public. It will cost the American public and the Grovemment
a lot of money.
45
Thank you.
Senator GRAMS. Ms. Golodner, thank you very much.
Mr. Leuver.
STATEMENT OF ROBERT J. LEUVER, FORMER DIRECTOR, BU-
REAU OF ENGRAVING AND PRINTING, WASHINGTON, DC,
PRESIDENT, NUMISMATIC ASSOCIATION, COLORADO
SPRINGS, CO, ON BEHALF OF THE COIN COALITION
Mr. Leuver. Senator Moseley-Braun, Senator Grams, it's a
pleasure to appear before you this morning. I'd like to thank the
Chairman and the Members of the Committee for inviting me to
testify.
My name is Robert Leuver. I'm presenting testimony on behalf
of the Coin Coalition, a group of 30 associations and companies
that want a one dollar coin.
I'm a former employee of the U.S. Treasury Department, 1974 to
1988. I was with Treasury's Bureau of Engraving and Printing
from 1979 until 1988, and its Director from 1983 to 1988.
Again, I'd like to ask your permission to submit a written state-
ment for the record and make a brief oral statement.
Senator Grams. Without objection, so ordered.
Mr. Leuver. Thank you. AH the Coin Coalition is trying to ac-
complish is to adjust for inflation. A dollar today is worth what a
quarter was in 1965. The country did not need a 25-cent bill in
1965. It does not need a one dollar bill today.
Allow me to try and dispel some of the common myths that are
being spread about the doUar coin.
Myth number one — ^the Anthony dollar was the wrong size, too
close to the doUar.
As was pointed out to Senator Faircloth, the Anthony dollar was
a poorly designed coin. That 111 grant. But the size was not the
issue. The Anthony dollar was a surprising 40 percent larger than
a quarter.
The problem was because the Anthony dollar had the same color
and the same reeded edge as a quarter. Canada proved this point
by making their coin exactly the same size as the Anthony dollar.
But Canada changed the color and they eliminated the reeded
edge.
Thank you.
Another myth — ^the environment will be damaged.
On the contrary, this is a green proposal. Virtually 100 percent
of coins returned to the Mint are recycled. In 1994, 89 percent, or
almost 6.5 billion Federal Reserve notes, returned to the Fed were
sent to landfills.
Mj^h number three — seigniorage is an antiquated and spurious
concept.
Well, I would simply respond that the Federal Reserve earned
about $21 billion in 1994 for the American taxpayer on Treasury
notes that back our currency as a result of seigniorage.
The latest myth is that people will choose not to use the one dol-
lar coin. In Monday's Los Angeles Times, director Philip Diehi
wrote that consumers could bypass a dollar coin to use a two dollar
note, as Mrs. Golodner has noted in her testimony.
46
Even if this were true, the Government would cut in half the an-
nual cost of printing 4.5 billion one dollar bills. This alone would
save the taxpayer $80 million annually.
What about public opinion?
None of the polls that have been commissioned told the respond-
ents that there would be a paper alternative to a one dollar coin.
No poll mentioned that the Government would save $400 million
annually over 30 years. When these facts are explained, something
remarkable happens. Opinions change.
Since the May 3, 1995 hearing in the House, 79 percent of the
newspaper editorials written about the dollar coin are supportive.
I suggest that this is an interesting contrast to Director Diehl's ear-
lier comments about 80 percent of the population not favoring the
dollar coin. The press is a mighty ally.
Now I want to turn to a more serious problem, and that is coun-
terfeiting. With nearly perfect counterfeit $100 Federal Reserve
notes now pouring out of the Middle East and Columbia, swift ac-
tion should be taken by the Congress, the Treasury Department,
and the Fed to eliminate the one dollar bill. Here's why.
At the BEP, some 47 percent of production is one dollar bills. In
order to combat counterfeiting abroad, these presses printing one
dollar bills are needed to replace $375 billion worth of higher de-
nomination notes, two-thirds of which are held overseas.
Ted Allison, a senior member of the Federal Reserve who accom-
panied Governor Kelley, told me this morning that two-thirds of
the $100 billions that are outstanding are overseas.
Treasury Department officials have stated that the redesign of
U.S. paper money will begin in 1966 with the newly designed $100
bills, followed by lower denominations.
Senator Moseley-Braun. Mr. Leuver, you meant 1996, I hope.
Mr. Leuver. 1996. Thank you very much. Senator.
Mr. Chairman, our money system is broken at every level, from
the lowly one-cent piece to the $100 bill. An integrated approach
needs to be taken to solve the problem.
A good place to start what is broken is to provide a one dollar
coin which will last 30 years and cost 8 cents to manufacture. At
the same time, eliminate the one dollar bill, which lasts only 15
months in circulation and will cost 4.3 cents to produce in 1996.
Give the BEP the capacity it needs to introduce the new genera-
tion of more counterfeit-resistant currency.
The Treasury Department last year determined to run counter to
public opinion, change the design of our currency to combat coun-
terfeiting. Introducing a dollar coin and eliminating the dollar bill
is also unpopular. There is an opportunity now for the Congress to
take the lead and save $400 million annually for the next 30 years.
Now is the time for leaders to lead.
Thank you.
Senator Grams. Thank you, Mr. Leuver.
Mr. Ryder.
47
STATEMENT OF DAVID J. RYDER, FORMER DIRECTOR, UNITED
STATES MINT, WASHINGTON, DC, PRESIDENT, THE RYDER
COMPANY, WASHINGTON, DC, ON BEHALF OF SAVE THE
GREENBACK
Mr, Ryder. Thank you.
I appreciate the opportunity to be here today to discuss S. 874,
the proposal to eUminate the one dollar bill and replace it with a
one dollar coin.
As President Bush's Mint director, I had numerous discussions
about the dollar coin with Members of this Committee and other
Committees during my tenure. I never wavered in my belief that
the dollar coin is a bad idea.
I would like to briefly put forth some thoughts and consider-
ations which I believe should be part of any policy deliberations
you would have, and would also ask that I have some other infor-
mation that I think should be included in the record as part of my
testimony.
Senator Grams. Without objection, it will be entered into the
record as noted.
Mr. Ryder. Thank you. Like Mrs. Golodner said, I bring before
me a list of all the various polls that have been done over the last
about 18 months, and they range from USA Today, Gallup poll, 77
percent opposed. Opinion Research poll, 72 percent opposed. The
John Kasich poll, which asked the question, even if it meant reduc-
ing the budget, would you like a dollar coin? Eighty-two percent
said that they were opposed. Market Facts poll, 73 percent. And fi-
nally, a Yankelovich poll at 65 percent.
I would suggest that these numbers and these statistics be en-
tered into the record and used as a real source of deliberations on
the policy issue of should we have a new dollar coin.
Senator Grams. They will be entered. Thank you.
Mr. Ryder. Thank you. Not all vending interests are supportive
of a dollar coin. For example, several small vending retailers
aroimd the coxmtry are fearful that a dollar coin will force them out
of business.
I hold before me a letter that was sent to Senator D'Amato just
last week. It's from a fellow by the name of Phil Greenhut of East-
em Vending in Lyndon, NJ, who wrote: We are the silent majority.
I'm quoting here. "We are the silent majority. Every vote of the
general vending population has called for the saving of the dollar
bill." Yet, NAMA. and the Coin Coalition have refused to listen to
us.
In his first statement in the letter, he says — ^the elimination of
the dollar bill will destroy my and most other small vending com-
panies' businesses. Yet, NAMA and the Coin Coalition have refused
to listen to us.
What he is saying is that the huge cost of retrofitting to accom-
modate dollar coins will drive him out of business.
I believe that it is significant that the conference agreement on
House Concurrent Resolution 67, the 1996 Budget Resolution
notes, "the conference agreement does not assume additional reve-
nues from replacing the one dollar bill with a one dollar coin." In
other words, no savings are assumed.
48
Nevertheless, coin proponents persist with the same justification
for a dollar coin — ^big budget savings.
One fact we cannot overlook is that we have a demand-based cur-
rency and coining system. Thus, if the people don't accept the coin,
as history says will happen, there will be no savings.
Five secretaries of the treasury in the last three administrations
have opposed the dollar coin fearing, as GAO noted, "It is dan-
gerous to minimize the negative reaction of the public that could
result from converting to a one dollar coin."
CBO, in my opinion, did not account for a $20 million public rela-
tions campaign to promote the dollar coin. It did not account for
capital expenditures needed to produce the coins. It did not account
for these costs to recall and melt down the 300 million Susan B.
Anthonys still stored in Mint vaults.
CBO offset these costs by using seigniorage.
Mr. Chairman, I believe that it is important to consider that the
U.S. Mint simply does not have the capacity, either in labor or
plant space, to produce a dollar coin.
As such, outlays to procure people, equipment and floor space to
produce a dollar coin would be significant.
Additionally, as Secretary Rubin has noted, there are concerns as
to whether or not private-sector coin strip manufacturers have the
capacity to produce the quantity and quality of coin strips which
the Mint would need.
I also believe it is important to consider the enormous con-
sequences of a dollar coin failure and consider this bill as grounds
of public policy versus budget effects.
By this I mean that under the best budget scenario, maybe $20
million per year is saved, about enough to pay the interesting oc-
curring on our national debt during this hearing.
On the other hand, if a coin fails, which history shows will likely
happen, the cost of storage, recall and meltdown alone will be huge,
not to mention the monies wasted on new machineries and floor
space.
H.R. 2018, introduced by Congressman John Oliver, will author-
ize the U.S.Mint to produce new, 24-carat gold and platinum in-
vestment coins. This would allow the Mint to market and sell new
investment products and compete with other world mints.
But most importantly, it will create real revenues for the Treas-
ury from the sale in world markets.
I also would like to hold up the June 12, 1995 issue of Business
Week. It says. The Future of Money.
The wave of the future is a cashless transaction in the market
place. This June 12, 1995 issue of Business Week features an arti-
cle. The Future of Money, which I believe speaks to the direction
we are heading in commercial transactions. I think that this type
of information, this type of reliable data is the type of data and the
way in which our society should be moving. I think Congress
should sincerely take a look at why this makes such good sense.
I also should point out — and I've lost my place for a second — that
Congress, and including Congressman Kolbe, used in a CBS news
poll that he wants to force this on the American public.
I think that's a bad idea. I think it's a bad idea that Congress
is going to force something on somebody that does not want it.
49
I think what will happen, and it's very important to note and all
of the people that have talked today, that the only way that this
proposal will work is simply if the American people will use it. If
all the polls are correct and if history proves us correct, people will
not use it.
The cost because of that to the Mint, to the private sector, to the
Treasury, to the taxpayers, will simply outweigh any cost savings
that anyone could devise under this proposed legislation.
I'd like to also thank you for your time and if I can answer any
questions, I'd like to do so.
Senator Grams. Thank you very much.
Senator Moseley-Braun. Senator Grams, I won't force any ques-
tions on this panel. I have another appointment that started a few
minutes ago. That's just the way of life aroimd here. You have con-
flicting appointments.
I just wanted to thank the Chairman and thank this panel for
very interesting testimony this afternoon. Thank you.
Senator Grams. I have a few questions that I'd just like to run
through briefly. I know the time is getting late. But to talk about
some of the testimony that you have given.
Mr. Ryder, first of all, when you talk about, as history would
show that the dollar coin has not been accepted. I think there have
been mistakes made and I think history has showed the Susan B.
Anthony was not a good coin to introduce. The Ike one was not well
introduced or handled.
But if you want to look at history, I think you have to look at
the other 25 major industrialized coimtries of the world that have
gone through this same scenario, faced the same opposition from
the public.
Even when the Ford Motor Company introduced the Edsel, it
failed. But that didn't keep them from introducing other cars.
So to say that history would preclude the prospects of success in
this area, what about the surveys and what about the history in
other countries? Canada, most specifically, with the success of the
loonie, despite similar type opposition in surveys as what you have
shown here?
Mr. Ryder. Well, I think one should not forget the fact that if
this bill is proposed as it is today, what's going to happen is you
want to reintroduce the $2 bill. As the polls say, if you introduce
the $2 bill, with a corresponding $1 coin, people will use the $2 bill.
I merely bring up the issue that should be considered, that if
people do that en masse, people will not use the dollar coin.
I also should note that if our currency, as Mr. Leuver and other
people have suggested, if we're changing our currency because of
counterfeiting and so on and so forth, and if the vending industry
discounts the fact that if we eliminate the dollar coin, that would
save them millions of dollars a year in savings that they wouldn't
have to put into their machines.
However, most vending machine companies, I think, will require
to maintain the proper disbursement of snacks and soda. If people
start using the $2 bill, they'll require that a $2 bill be installed in
those machines.
Now those new $2 bills in 1999 will have the same counterfeit
deterrent features as the one dollar bill will.
50
There's no offsetting cost there. It's going to cost the vending ma-
chine industry, I think, an enormous amount of money to retrofit
those machines.
Senator Grams. Mr. Leuver, you had mentioned, I think, in your
testimony that if they did go to the $2 bill, it would cut the use
or the cost to the Treasury in half to the one dollar bill.
Mr. Leuver. Only because I heard the testimony from others
that there would only be 50 percent of them used. So that would
be actually what would be cut.
You know, an interesting point that you made on the perception
of people and public opinion on the introduction of coin to replace
a bill.
Canada, in January, determined that they were going to come
out with the $2 coin. They ran a poll. Quite the contrary of when
they introduced the $1 coin, 79 percent of the people responded
that they would welcome a $2 coin.
What has happened is a change of perception in the 6 years since
the $1 coin has been in circulation.
Senator Grams. I think I stated earlier, there was a friend of
mine who returned from Europe. After 1 month, in finding the
coins in Europe and how handy they were, he said that this would
be a great idea, in fact, endorsed it. After only 1 month of use in
Canada.
Mr. Clayton, the charges that it would raise prices in the vend-
ing industry, that it wouldn't save money, that you would be forced
to use a $2 dollar coin or bill changer.
What is the response from the silent minority or the vocal major-
ity?
Mr. Clayton. OK. I want to commend Mr. Ryder for finding a
needle in a haystack with Mr. Greenhut. Mr. Greenhut is a vendor
from New Jersey.
We have in our possession today a letter from the State of New
Jersey's vending association wholeheartedly backing the propo-
sition for a new circulating dollar coin.
I would be glad to enter that into this record.
As I stated earlier, our industry is ready today to accept a dollar
coin of the same size and same diameter and thickness as the
Susan B. Anthony.
Senator Grams. You accept Susan B. Anthony's today. Is that
correct?
Mr. Clayton. Yes, sir. We are using them in our operation be-
cause of the ease and convenience. We are capable today of taking
larger denomination currency and to give back 20 quarters for a $5
bill is very inconvenient to the general public.
So we have dollar bill changers equipped with the Susan B. An-
thony and it is returned and we give them five coins back and then
they can be used right now, today, in our vending industry.
There's no downside at all to us in this, and we've been getting
ready for this since the Susan B. Anthony coin was introduced in
1979. Any progressive vendor in this country that is looking to the
future and looking toward his well-being, has been purchasing coin-
handling equipment that will accept the dollar coin of that size and
dimension.
51
So, we are ready. We are anxious to move forward and have a
coinage system that is not antiquated.
Senator Grams. Mrs. Golodner, you heard Mr. Buetow's testi-
mony a few minutes ago that it would save the cost of processing
a dollar bill compared to the process of the coinage and the amount
of money that the transits could save and the amount of buses that
they could put on the road without increased fares. Or maybe even
holding the fares at a certain level.
This would basically help consumers in the long run, in just this
one industry alone. Would you agree with that?
Ms. Golodner. Not necessarily. As we found in Washington, DC,
prices can go up no matter what.
Senator Grams. It wouldn't be blamed on the use of the coin.
Ms. Golodner. I know in Washington, when we put a dollar bill
into the Metro machine, you have to put it in a certain way. There-
fore, no one has to be employed to turn the dollar bill in one direc-
tion.
I think, in the long run, if you look at the use of coins in vending
machines, in laundromats, and in amusement machines, the cost to
the American public is going to increase if a dollar coin is intro-
duced.
Senator Grams. What about the fact, according to the testimony,
that there are 6 million Susan B. Anthonys that are being drawn
down from the Treasury every month?
I think that would show that, despite the unpopularity of that
dollar coin, there's more and more demand for it and it's being used
on a wider scale.
So the pubUc itself is demanding even an unpopular coin at 6
million per month. In 4 years, the^re going to draw down the en-
tire source that we have.
What's your response to that. Despite opinion polls that they
don't like it, more and more are being used.
Ms. Golodner. That was the first time I had heard that number.
I don't know the reason for the demand.
Mr. Ryder. Can I clarify that one?
Senator Grams. Mr. Ryder.
Mr. Ryder. Where they're being drawn down from is from the
U.S. Postal Service
Senator Grams. Most of them.
Mr. Ryder [continuing]. Who uses them in vending machines.
However, I thiiik that the use, if you'll check with the U.S. Postal
Service, and I'd be happy to do that for you, is that it's very incon-
venient for them. The^re finding that people that they use those
machines, they get — and if you get to a machine, it flashes a red
neon sign that says, this machine gives one dollar coins in change.
They're finding that those machines are not being used as much
because people simply don't want the dollar coin. When they get
the dollar coin
Senator Grams. Or they don't have one.
Mr. Ryder. Well, more importantly, but they're not using them.
What they're doing is taking those coins back to the postal desk
and saying, give me real money for this. I can't use this.
52
So I think that's where the draw-down is coming. I think as the
Postal Service carries out this experiment, that they haven't
worked as well.
Senator Grams. To continue to move to the left side, Mr. Clay-
ton, I also wanted to ask you about the charges, and we've heard
some of this before, that it would increase prices in vending ma-
chines and probably even the transit. Mr. Buetow, we'll get to you
on that in a moment.
We heard testimony before that there's many avenues to deliver
products and vending machines are only one way. With competi-
tion.
Would that be an excuse for vending machines, to raise their
prices on an unsuspecting public?
Mr. Clayton. No. Competition sets pricing. We don't. If the fel-
low down the street or my competitor in the vending industry de-
cides that he can outbid me price- wise, that's the way he's going
to get his business.
So, it's very unfounded to believe that just because we have the
availability of a dollar coin, that we're going to go out and raise all
of our prices to match.
Senator Grams. It already takes a dollar bill.
Mr. Clayton. Yes, sir. And had we — that is the point I tried to
make in my testimony, the fact that we spend up to $400 at this
point in time to accept the dollar bill, and that cost would be totally
eliminated if we had a circulating dollar coin and had the elimi-
nation of the dollar bill.
Senator Grams. Mr. Buetow, would that be able to have transit
companies raise prices?
Mr. Buetow. Again, no, we would not raise prices. As I stated,
our own production, the token, which is really counter to the pro-
duction of the dollar coin, is sold at a reduced rate, just from the
standpoint of the CTA. It's $1.25.
If, in fact, we had a dollar coin and the cost of processing the
other dollar bills drops, then certainly, ridership cost drops and the
saving would be passed on to the consumer.
That is the intent and that's why we're actively supporting this
also. It's a customer convenience. It's our job, again, as I told you,
as a taxpayer, and also from the representative of the transit asso-
ciation, also CTA, that more efficiencies, require less Federal sub-
sidies. Certainly any cost savings involved are really passed on to
the ridership.
Senator Grams. This may be leading the Witness, but if you sur-
veyed your customers and said, dollar bill, 4 quarters, or a new dol-
lar coin, which do you think they would support or favor?
Mr. Buetow. I think that once proper marketing is done, I think
that a readily identifiable dollar coin would be as easy to use as
a token in any transit company.
I realize that the dialogue that has gone on here this afternoon
about the surveys that have been done on dollars and the use of
dollars and certainly, that is a concern. But I really believe that a
marketing issue from the standpoint of transit to support a dollar
coin is essential because that is the key to this.
53
That's the reason a Susan B. did not work in transit. I fully
agree with the other testimony, that for us to change over is a
minimal cost.
If we had a readily identifiable coin at the present time, rel-
atively the same diameter as the Susan B., it would not cost the
agencies hardly any money at all to convert.
Again, I have to keep impressing on you, Senator, that a lot of
things that we're talking about, even the production of tokens, is
subsidized by the Federal Government.
I've heard a lot of dialogue here today about the use of smart
cards and other approaches. My agency alone is on a track now
within 2 years to go to automatic fare collection equipment.
Part of that is the smart card approach. It isn't the panacea of
solving everybody's problem because no matter what we do in in-
dustry, 53 percent of my ridership over the years on the Chicago
Transit Authority always use cash.
So the idea of using cash, no matter what you do with smart
cards, certainly comes back still to the convenience of an identifi-
able dollar coin. The smart card, one must not forget, that's not a
situation that's given free. Those smart cards and electronic items
are a basic cost of about $10 to $25 per card.
I don't think you can sell a consumer on sajdng that I'm going
to give you the issuance of a card or an electronic card at that cost
and say they're going to accept that. I think it's more easy for them
to accept the dollar bill, new coin.
Senator Grams, Mr. Looper, the banks charge stores from 6 to
10 cents for a roll of coins, in handling. But yet, they charge 50
cents or more for a strap of dollar bills. So why would you say,
then, that it's going to cost more to handle coins?
By the way, when you're transporting with Wells Fargo or any
other security, do they charge you by weight or by the load or the
trip?
Mr. Looper. Well, by and large, the company we use charges us
by the roll for coins. They actusdly deliver rolled coin to us. If they
deliver currency, there is no additional charge. We have one fee for
delivery. So they don't charge us for the bills, but we do pay for
the coins.
As far as what banks charge for rolled coins, I can only speak
for my own bank. We do not charge an)^hing for currency.
Obviously, if a consumer comes in for coin or currency, we don't
charge anything. We only charge our commercial customers for
coin. In our banlk, we do not charge for strap currency.
We charge 2 cents per roll for coin to our commercial customers.
Oddly enough, it costs us 3.34 cents per roll from the armored car
service to have it delivered to our door. So we're not real smart on
making a lot of money on that transaction.
But I would point out that currency and coin is an expensive
proposition for the banking industry. It is very labor-intensive for
us to handle. We have people standing there all day to handle
transactions. The space we have to store it is very expensive and
we have to pay for insurance to safeguard it.
When it's sitting in the vault at the bank, we have no earnings
from that money. It just sits there idle. The only thing we can do
54
with it is actually satisfy some of our sterile reserves with the Fed-
eral Reserve Bank. But we can't make loans with it or invest it.
So handling coin and currency is an expensive proposition for the
banks. Oddly enough, most of the money that is in the banking sys-
tem doesn't come in in the form of coin and currency. It comes
through electronic transactions and checks.
So there's a small percentage of the deposits that are related to
cash, but a large part of the overhead cost in the bank is associated
with that coin and currency.
Senator Grams. My one final question to Mr. Leuver. What has
been the experience of other countries that have introduced such
coinage?
Mr. Leuver. The perception of other countries at the beginning
was that a coin was very difficult to handle because of weight. Peo-
ple, much like they do in the United States, do not like change.
However, my experience as a Treasury official, subsequently as
the CEO of the American Numismatic Association, which deals
with this type of thing, the foreign countries and foreign people
have readily accepted the coins as a replacement to paper.
Senator Grams. Any closing comments that any of the witnesses
would like to make?
Mr. Ryder, you've got your hand up.
Mr. Ryder. I've got one that I would like to echo from the other
side of the table.
This morning, on my way to work, I ride the Metro from my
home in Arlington. I talked to one of the station attendants and I
asked him about this new go card technology that the Metro serv-
ice here in Washington and Virginia and Maryland are testing.
He showed me a demonstration. It was very unique. The tech-
nology, it allows you to pay rail and bus fares and parking fees
with a single card instead of using farecards, dollar bills and coins.
But what was most amazing was as he walked through the turn-
stile, he didn't have to come out of his pocket with a coin or a
farecard or a dollar bill. He didn't have to go to the machine to put
a dollar bill in to get a farecard out.
What he did, simply, was to put money on the card. He held it
up to the machine, put his money in, walked away. He put it in
his pocket and he walked right to the turnstile without stopping,
without putting a farecard in that machine. Smart card technology
uses a computer chip.
The reason I bring it up is I think, as the House hearing later
this month will point out, that this type of technology I think is
where we're going to go. By using this kind of technology that
makes people's lives easier, whether it be on the Internet, whether
it be in other types of farecards, whether it be telephone collections
which Europe uses, European countries and Japan uses regularly,
I think those are some real serious things that your Committee
should also take into consideration while you're considering going
back to a one dollar coin.
I simply bring that up and hope that you'll look at that.
Senator Grams. You're arguing convenience, which the dollar
coin has proposed to help.
Mr. Ryder. Convenience and less cost.
55
Senator Grams. The same. Anybody else have any closing com-
ments?
Mr. BuETOW. I think I'd like to make one closing comment.
Senator Grams. Mr. Buetow.
Mr. Buetow. From APTA, the American Public Transit Associa-
tion. For you to imderstand what the total revenue is from transit
that we're talking about.
In depository revenue, throughout the 400 agencies in the coiui-
try, we're talking about almost $4 billion per year. Again, the cost
savings again that we've documented to you, I think are fairly ac-
curate.
I'd like to again say that the smart card approach is a cost factor,
not a savings. It's a purchase item. It is not a give-away. We must
understand this.
So, again, I thank you for letting me appear on behalf of transit
and representing both my company and them.
Senator Grams. Thank you. Mr. Looper, you've made up your
mind.
Mr. Looper. Yes. I'd like to make just one comment.
When banks get processed coin from the Federal Reserve, they
do charge for that but not for currency.
So, we have an agency or quasiagency of the Federal Govern-
ment— I know the5^re not an agency — that is actually going to be
making money off the banking industry, again adding costs that
we're going to have to pass on to the consumer because of this new
dollar coin.
If you take away the charge of the Federal Reserve, then I have
less problem with it because it takes away costs that I don't have
to pass on.
Senator Grams. But you agree that there are going to be pluses
and minuses in any system?
Mr. Looper. Oh, yes.
Senator Grams. And your minuses are pluses for the transit or
for the vending machines. So there are giveaways and take-aways.
Mr. Looper. Yes, sir.
Senator Grams. All right. Thank you. Any other comments?
[No response.]
I just would like to ask that the record be kept open to include
any additional written testimony or any other written responses
from witnesses to additional questions that might be presented
from any of the Members of the Conmiittee.
If there's no objection, this hearing is adjourned.
[Whereupon, at 1:05 p.m., the hearing was adjourned.]
[Prepared statements and additional material supplied for the
record follows:]
56
PREPARED STATEMENT OF CHAIRMAN ALFONSE M. D'AMATO
The Committee today considers an issue that affects everyone — whether we
should mint and circulate a dollar coin in place of the dollar bill.
I would first like to thank rnv friend, Senator Grams for his leadership and hard
work on this matter. Senator Grams has been diligent in bringing this issue to our
attention, by introducing S. 874, "The United States One Dollar Com Act."
But, replacing the dollar bill with a dollar coin has been a controversial issue, pro-
ducing widely different opinions.
Proponents of the Grams Bill would argue that savings to the Government and
the positive affect on the budget would be in the millions, even billions. There are
also arguments concerning convenience and savings to business.
Opponents of this bill question the estimated savings to the Government, citing
huge differences in reported totals. They also cite polls showing that the public is
not ready to give up tne dollar bill. I understand the motivation of those who wish
to "Save the Greenoack." The dollar bill is a powerful symbol for America and the
world. It represents a lot more than 100 pennies or what it can or can't buy — it rep-
resents stability and tradition. And, the dollar bill's significance isn't confined to the
United States. It has '^Universal Recognition." That recognition translates into secu-
rity and reliability all over the world.
Another key issue will be public acceptance. For instance, how do we avoid the
mistakes of the "Susan B. Antnony" Dollar Coin of the late 1970's?
This Committee has wrestled with these complex issues in the past. For today's
hearing we have assembled experts from some industries that would be affected.
While we may not be able to aadress everyone's concerns, I look forward to hearing
from today's witnesses on this important matter.
Again, I thank Senator Grams for requesting this hearing.
PREPARED STATEMEP^ OF SENATOR CAROL MOSELEY-BRAUN
Mr. Chairman, changing the currency or the coinage of the United States always
involves an element of controversy. After all, virtually everyone uses money — every
day. Americans are very familiar with our currency and coinage, and they under-
standably and justifiably have opinions on whether to change it.
TTiere are a number of reasons that argue for change. We have a constituent of
mine, William C. Buetow, who will talk about what it takes to handle dollar bills
at the Chicago Transit Authority. I'm sure that most of us have not thought much
about the problems he will describe, but they are very real. Other witnesses will
talk about things like the cost of dollar bill changers, and the problems they entail.
I'm sure we've all had a run-in with a balky dollar bill changer, one that simply
won't take our dollar for a subway ride or a soft drink, no matter how many times
we straighten the dollar.
And change can mean real budget savings. The Congressional Budget Office, the
General Accounting Office, and the Federal Reserve Board all agree that replacing
the dollar bill with a one dollar coin would save the Government literally hundreds
of millions of dollars. CBO estimate at least $200 million annually, and the GAO
estimate is even higher — $456 million.
Perhaps one of the most important reasons for going to a one dollar coin, however,
is related to the fact that the dollar is no longer worth what it used to be. In fact,
the dollar's value has declined by over a factor of four in just the last 35 years.
When I was a child, you could get a hamburger, fries, and a small Coke at McDon-
ald's for 42 cents. Now the cost is over $2. You could get a Chicago Tribune or a
Chicago Sun-Times for 7 cents. Now, the Tribune costs 50 cents and the Sun-Times
35 cents. I could go on and on, but the point is simple — inflation has made the dol-
lar worth less than a quarter when John F. Kennedy was President of the United
States.
Perhaps the most telling illustration of the erosion of value of our currency and
coinage is the fact that so many stores now have a "penny" dish in front oi their
cash registers — inviting their customers to take a penny or two or leave a penny
or two to make their transactions come out even to the nearest nickel. It is that
kind of change in the value of money that led Great Britain to replace the one-
pound note with a one-pound coin. And it is that fact that led Canada to replace
its one dollar bill with a one dollar coin.
These foreign countries, and many others, understood that they needed to update
their currency and coinage to fit present-day economic realities — and that need is
no less real in this country. That is why I cosponsored S. 874, because I believe that
updating our money to reflect current economic realities is long overdue. I think we
57
should act carefully. I think the coin must be designed carefully. We need to learn
from our past mistakes, but we should not let those past mistakes keep us from tak-
ing the action that is necessary now.
We can make our money more convenient for the American people, and more con-
venient for American business. We can update our money so that it makes sense
again. That is all S.874 tries to do, and that, in my view, is what this Committee
and this Congress ought to do.
PREPARED STATEMENT OF CONGRESSMAN JOHN W. OLVER (MA-lst)
Mr. Chairman, thank you for allowing me to give the Committee my thoughts on
the proposal to replace $1 bills with $1 coins.
Put simply, any attempt by the 104th Congress to replace the bill with a coin —
for budgetary reasons or otherwise — would be a bad idea.
To begin with, the budget savings attributed to the $1 coin, which have been vast-
ly overstated at times, are minimal. As you know, the U.S. Mint, led by Director
Phillip Diehl, has opposed the legislation introduced in the House and Senate to
convert to a $1 coin, m the Mint's May 26, 1995 official announcement of its opposi-
tion to the $1 coin, it projected a net cost for the proposal of $29 million over a 5-
year period.
It is also clear that no savings will be realized in any time frame if the public
rejects a new $1 coin, as it did with the Eisenhower and Susan B. Anthony dollars.
On this critical issue of public acceptance, the Committee should be aware of the
recent national polls which indicate overwhelmingly that the public does not want
the Government to replace $1 bills with coins.
EarHer this year. House Budget Committee Chairman John Kasich included the
$1 coin proposal in a list of candidate ways to reduce the deficit that he shopped
around the country. Kasich's results: only 18 percent of those surveyed supported
switching to a $1 coin, even when put into the context of a comprehensive effort
to balance the Federal budget.
The most recent poll on the subject was conducted by Gallup in conjunction with
USA TODAY/CNN. The results of that poll, which were published June 14, 1995,
were that 77 percent of Americans oppose converting to a $1 coin. These numbers
represent a formidable red flag which we ignore at our peril. Again, if the attempt
to replace the $1 bill with a coin fails by public rejection of the coin, the initiative
will not save one penny — but it will cost us many millions of dollars.
As you are undoubtably aware, an 18-month implementation time frame was cho-
sen by the authors of pending House and Senate legislation to convert to a $1 coin
because any larger period significantly increases the chances of the coin being
spurned by the public. The Mint, however, has made it clear that an 18-month time
frame is not feasible given its current capabilities and competing responsibilities.
In response to this problem, some advocates of the $1 coin may suggest "stretch-
ing" the implementation time frame. While this might work for the Mint, it runs
counter to the need to keep the implementation period brief to avoid rejection. In
short, either way leads to failure.
There are other reasons why the $1 coin is not a good idea. Conversion to a coin
could lead to a manipulative inflation of prices of goods and services purchased
through coin-operated machines. A $1 coin would also result in an increase in envi-
ronmentally taxing metal ore strip mining. This problem has caused such environ-
mental groups as the Audubon Society and the Sierra Club to oppose the proposal.
Converting to $1 coin, with all its risks and problems, is also particularly unwise
when there are other, more prudent budget options available, including some ways
for the Mint to increase its revenue through the marketing of new investment coins.
Despite the fact that 24-carat gold and platinum legal-tender investment coins
sell extremely well on the international market — especially in the Far East — the
U.S. does not offer a product in either category.
While current law directs the Department of the Treasury to produce and market
22-carat gold coins, the Mint lacks direct legal authority to move into the 24-carat
gold and platinum arenas. Our absence from these lucrative markets means the
Treasury is missing out on millions of dollars in forgone revenue. Estimates of the
potential introductory-year profit to the Federal Government from the sale of 24-
carat gold coins alone are as high as $80 million.
Accordingly, I am introducing legislation in the House to give the Mint explicit
authority to expand the American Eagle gold coin program to 24-carats and to
produce investment platinum coins for the first time in our Nation's history, catch-
58
ing us up to countries like Canada, Austria and Australia that have already recog-
nized the prestige and popularity of these high-value coins.
We should seize this non-controversial alternative, and reject the proposal for.a
new $1 coin as an idea ridden with a number of serious, inescapable proolems and
disadvantages negatives that add up quickly and make $1 coin a bad option for the
104th Congress.
Again, thank you for the opportunity to share my thoughts with you.
PREPARED STATEMENT OF EDWARD W. KELLEY, JR.
Member, Board of Governors of the Federal Reserve System
Washington, DC
July 13, 1995
The Board of Governors is pleased to have the opportunity to present its views
on S.874, which would provide for substituting a one dollar coin for the one dollar
banknote now in circulation, and on several benefits and costs of making such a re-
placement.
In summary, a dollar coin would produce a substantial budgetary gain for the
Federal Government, provided that the one dollar note is withdrawn from circula-
tion. The Board staff estimates that the gain would be about $2.28 billion, in nomi-
nal terms, during the first 5 years after introduction of the new coin and would av-
erage about $456 million per year, in real discounted present value terms, over the
assumed 30-year life of the dollar coin. The Board believes, however, that the con-
venience and needs of the American public, as well as cost savings, should weigh
heavily in this decision. Experience in Canada and other countries where similar
changes have been made in recent years suggests that the public will, over time,
find a dollar coin more convenient than the dollar note. Finally, we would note that
the significance of the U.S. dollar goes beyond the purchasing power it represents
or the utility it provides; for Americans, the dollar is a symbol of economic and polit-
ical stability and a source of national pride; consequently, any change should be
made only for the most compelling reasons. If, after taking account of all these con-
siderations, the Congress is inclined toward replacing the dollar note, it should
enact legislation with a reasonably delayed effective date so that all those affected
can plan adequately for the transition.
The impact on the Federal budget of issuing coins and currency notes is not wide-
ly understood by the public, so it may be useful to devote a part of this statement
to reviewing those fundamentals. Although the accounting processes and budget
presentations are quite different for notes and coins, in substance:
• Both issuing coins and issuing currency notes lower the Government's effective
cost of borrowing from the public, by approximately the value of the coin or cur-
rency notes in circulation times the interest rate that the Government pays on
its debt.
• There is an ofTsetting cost to the Government associated with servicing the out-
standing circulating coins or notes, which involves replacing "unfit" coins and
notes as they wear out and operating the Federal Reserve currency and coin proc-
essing facilities that provide the public with good-quality, genuine coins and
notes.
Let us start with the following assumptions in order to illustrate the budget and
accounting processes: (a) the Treasury's oorrowing rate is 5.5 percent; (b) there will
be 7 billion $1 notes already in circulation at the time of the changeover; (c) $1
notes have a useful life of 1.5 years and cost 3.8 cents each to produce; (d) $1 coins
would have a useful life of 30 years and cost 8 cents each to produce; and (e) $1
notes and $1 coins would cost 75 cents and 30 cents per thousand pieces, respec-
tively, to be processed at Federal Reserve Banks.
In the issuance of currency notes, the reduction in net governmental borrowing
from the public occurs indirectly. The Federal Government's total borrowing and
total interest outlays are not affected, but the Federal Reserve System holds a port-
folio of Government securities equal to the value of Federal Reserve notes outstand-
ing and, at the margin, the Federal Reserve returns to the Treasury its full earnings
59
on those securities. These earnings are, from the Treasury's viewpoint, a return of
its own interest outlays.*
• In our simplifled model, the $7 billion of outstanding $1 notes provides a gross
benefit to the Treasury of $385 million per year.^
• The cost of servicing the $1 note issue is the cost of replacing each note every
1.5 years, or $177 million per year,^ and of processing it 1.3 times per year at
Reserve Banks, or $7 million per year.*
Thus the net benefit to the Treasury associated with 7 billion of outstanding $1
notes is $201 million per year.'
In the issuance of coins, the reduction in net governmental borrowing from the
public occurs directly. When the Treasury deposits newly minted coins at Federal
Reserve Banks, it receives credit to its checking account, and thus the Government
is able to make budgeted expenditures without additional borrowing, in the amount
of the face value of the newly deposited coins less their production cost (which
amount we call "seigniorage").®
• Seven billion new $1 coins would reduce the Federal Government's total borrow-
ing by $6.44 billion"' and total interest outlays by $354 million per year,® a gross
benefit not much different from the gross benefit from 7 billion notes.
• But the cost of replacing each coin every 30 years would be only $19 million per
year^ and of processing dollar coins at Reserve Banks 0.2 times only $1 million
per year.*"
Thus the net benefit to the Treasury associated with 7 billion of outstanding $1
coins would be $334 million per year,** considerably higher than that for an equal
number of currency notes.
At this point in the analysis, replacing $1 notes with $1 coins would have a favor-
able impact on the governmental budget of $133 million per year.*^ However, such
a replacement would have a further, and even more significant, benefit. Based on
the experience of numerous countries that have made a comparable substitution, as
reported by the GAO, the Government can expect to issue at least twice as many
$1 coins as it would have issued $1 notes. *^ (This may result partly from the habit
of many people to save their pocket change at the end of the day, partly from the
stock of uncollected coins in a larger number of vending machines, and partly from
a tendency for banking and retail establishments to hold larger quantities of coins
than of notes because of higher transportation costs.) In our simplified model, dou-
bling the number of $1 coins in circulation would add another $334 million per year
to the Treasury's benefit, for a total benefit of $467 million. These effects are sum-
marized in the following table.
^The Federal Government budget accounts treat Federal Reserve earnings paid to the Treas-
on' as a miscellaneous receipt.
^$7 billion x 5.5 percent
^ 7 billion notes + 1.5 x $.038.
*7 billion notes x 1.3 x $.00075 ($.75 per 1,000 pieces).
'*$385 million - $177 million - $7 million.
®The budgetary accounting process for coin production sometimes gives rise to the belief that
the booking of seigniorage per se reduces the Treasury's borrowing requirement. This is not so.
It is being able to spend tiie newly minted coins that reduces the Treasury's need to borrow.
Such spending seldom occurs directly, of course; the Treasury ordinarily deposits newly minted
coins at Federal Reserve Banks for credit to its checking account. Reserve Banks accept only
as many new coins as they expect to need in order to meet the requirements of depository finan-
cial institutions in their districts.
'$7 billion face value - $560 million production cost.
*$6.44 billion x 5.5 percent.
»7 billion coins 30 x $.08.
^° 7 billion coins x 0.2 x $.00030. Note that $1 notes are typically deposited at Federal Reserve
Banks an average of 1.3 times per year. We expect that $1 coins would be deposited only 0.2
times.
" $354 million - $20 million.
^ $334 million - $201 million.
^^In six countries that replaced a note valued at about one dollar with a coin, the General
Accounting Oflice found coin-for-note replacement rates ranging from 1.6-to-l to 4-to-l. General
Accounting Oflice, NATIONAL COINAGE PROPOSALS, Limited Public Demand for New Dollar
Coin or Elimination of Pennies, May 1990, page 39.
60
$1 note
$1 coin
Difference
Reduction in net
governmental borrowing
from the public
$7.00 billion
$6.44 billion
Reduction in net
governmental
interest outlays, annually
$385 million
$354 million
$ 31 million
(in favor of note)
Cost of maintaining the
outstanding issue, annually
$184 million
$ 20 million
$164 million
(in favor of coin)
Net benefit based on
7 billion notes vs. 7 billion
coins, annually
$201 million
$334 million
$133 million
(in favor of com)
Additional benefit from two-
fold replacement rate,
annually
$334 million
$334 million
(in favor of coin)
Total benefit based on
7 billion notes vs. 14 billion
coins, annually
$201 million
$668 million
$467 million
(in favor of coin)
Table 1
A Simplified Outline of the Impact on the Federal Government Budget
Of Substituting $1 Coins for $1 Notes
The simplified model, of course, does not fully reflect the real world. There are
factors that would both increase and decrease the $467 million annual benefit
shown above. In particular, growth in the volume of $1 currency pieces outstand-
ing— historically, over 4 percent per year — would, over time, considerably increase
the benefit of substituting coins (or notes. On the other hand, some increase in the
use of $2 notes by the public seems very likely if the $1 note were no longer issued,
and any such increase would reduce the budgetary gain. In addition, the production
cost for higher denomination notes would rise because fixed costs at the Bureau of
Engraving and Printing would be spread over a smaller production volume. (One
dollar notes account for nearly 50 percent of the total annual currency note produc-
tion.)
Taking account of these additional factors, the Board's staff estimates that, in the
first 5 years of the implementation, the Federal Government budget position would
be improved by a total of $2.28 billion (in nominal terms). The average yearly gain
in real present-value terms, over the assumed 30-year life of a $1 coin is esti-
mated to be $456 million.^''
There are other factors that could substantially add to the gains of such a substi-
tution but that are inestimable and so are not included in our calculations. For ex-
ample, there is likely to be a very considerable numismatic, or sentimental, collect-
ing of $1 notes as a result of an announcement that they soon would no longer be
issued (although $1 notes would continue to be legal tender).
These gains would be unlikely to be achieved, however, if the dollar note were
not withdrawn from circulation. First of all, manv people, at least initially, would
continue to prefer the note if given a choice. That being true, the private sector (no-
tably banking and retail estaolishments), not knowing how extensively the public
would use the dollar coin, would be reluctant to make the infrastructure outlays
necessary for the coin to succeed (training employees on new cash-register-drawer
procedures, ordering of dollar coin inventories, new arrangements with financial in-
stitutions, and the like). Likewise, the public would refrain from using the new coin
"The 30-year estimate uses an inflation rate of zero, a Treasury borrowing rate of 3 percent,
and a rate for discounting future values to the present of 3 percent. The advantage of expressing
the longer-run financial impacts in real present- value terms is that it adjusts for inflation and
the time value of the magnitudes involved.
61
if the retail sector were not prepared.^'' In the meantime, the public sector (particu-
larly the Bureau of Engraving and IVinting, the Bureau of the Mint, and the Fed-
eral Reserve System; perhaps also the Postal Service and mass transit systems), not
knowing what the respective demands would be for dollar notes and coins, and
wanting to be able to meet any likely demand, would inevitably overinvest in pro-
duction and processing capacity.
As important as the budgetary gains would be, the Board believes that the con-
venience and needs of the public also should weigh heavily in this decision. In this
regard, opinion surveys indicate that the American public generally is satisfied with
the present currency system and may not initially welcome replacing the one dollar
note. There is evidence in the experience of other countries including Canada, how-
ever, that over time a dollar coin would come to be recognized as more convenient,
cleaner, and more efllcient than the one dollar note.
If designed properly, a dollar coin may well be able to evoke confidence in the cur-
rency system and be a source of national pride to the same extent that the dollar
note does now. Market testing, such as with focus groups, can help to achieve this
result.
If this Committee decides to move forward with dollar coin legislation, you should
be aware that S. 874 would not, in our view, provide enough preparation time for
those most involved — the Nation's banking and retail establishments, the Treasury
Bureaus of the Mint and of Engraving and Printing, and the Federal Reserve
Banks. We have two concerns.
First, any legislation should, in our view, give the Mint adequate time in which
to be certain that the coin design will meet the needs of users well into the next
century. This has both physical and aesthetic design implications and presumably
would require considerable market testing. Closely related is the need for adequate
time in which to produce a large stock of new dollar coins once the design is ap-
proved. In our view, any legislation should give the Treasury Department a good
deal of freedom to set the Mint's production schedule so as to optimize costs and
resource usage at the Mint, the Bureau of Engraving and Printing, where the im-
pact on banknote production will be substantial, at the Federal Reserve Banks,
which will need to adjust considerably their capacity for processing notes and coins
as well as draw down their inventories of $1 notes, and at commercial banks and
retail establishments. Eighteen months, as S.874 provides, would not be enough
time for this planning and production. The Board believes that any legislation
should provide at least 36 months.
Our second concern is with the requirement in S.874 that the Federal Reserve
discontinue ordering and paying out $1 Federal Reserve notes immediately upon in-
troduction of the $1 coin. The length of time in which the Federal Reserve must pay
out both coins and notes would be a function not only of the Mint's production ca-
pacity but also of variables, such as the substitution rate of $1 coins for $1 notes
and the public's demand for $2 notes, that could not be predicted accurately in ad-
vance. The Board believes that any legislation should give the Federal Reserve free-
dom to adjust the timetable for discontinuing the issuance of $1 notes within a pe-
riod of 2 years following introduction of the new $1 coin.
Moreover, beginning in 1996, the Treasury and Federal Reserve will begin a
multi-year introduction of new designs for Federal Reserve notes that will be com-
pleted (with the introduction of a newly designed $5 note) in about 1999. It would
be preferable that these important changes not occur contemporaneously with the
introduction of a dollar coin.
A reasonable approach may be for the Congress to explore thoroughly the implica-
tions— for the Federal budget, for the convenience and needs of the public, and for
the public's feelings toward the currency — of replacing the $1 note with a coin. If
the Congress judges that the balance of considerations weighs in favor of replacing
the note, it should adopt legislation as promptly as possible that would establish
dates in the future for introducing the new $1 coin, say in about 3 years, and for
no longer issuing $1 notes, say within two years after that. In that way, both the
public and private sectors would have a sound basis for beginning immediately to
plan for the change.
^^See The Susan B. Anthony Dollar and the Theory of Coin I Note Substitutions, by John P.
Caskey and Simon St. Laurent, Journal of Money, Credit, and Banking, Vol. 26, No. 3 (August
1994, Part I), for an excellent treatment of "network externalities" in currency systems.
62
PREPARED STATEMENT OF PHIUP N. DIEHL
Director of the United States Mint, Washington, DC
July 13, 1995
Mr. Chairman and Members of the Committee: Thank you for your invitation to
present the Treasury Department's position on S.874, legislation eliminating the
one dollar note and mandating production of a new one dollar coin.
Mr. Chairman, the Treasury opposes this legislation for three reasons:
• The American people overwhelmingly reject the substitution of a dollar coin for
the dollar note, and for that reason they are likely to resist the attempt to force
its circulation.
• Proponents have greatly overstated potential savings and have ignored potential
risks associated with substituting the coin for the dollar note.
• The United States Mint cannot produce the specific dollar coin required by this
legislation in the time allowed.
Public Opposition
I begin, Mr. Chairman, by reminding this distinguished Committee that the
Treasury Department has mounted two unsuccessful attempts to launch dollar coins
in the past 25 years: The Eisenhower dollar of the early 1970's and the Susan B.
Anthony dollar in 1979. After 15 years, the Mint and the Federal Reserve still have
more than 280 million of the original 857 million Susan B's in their vaults.
Since the failure of the Ike and the Susan B., the American consumer has not
warmed toward a dollar coin. Public opposition to eliminating the dollar note is ar-
dent. Repeated polls show that Americans prefer a dollar note over a dollar coin by
a margin of four-to-one. (See Exhibit 1)
8oro
(,{)"/«
'10%
20%
0%
'iiblic Opposidoii lo Dollar Coin
t vS ]^'i
n Oppose rcplncing $1 iiolc with $\ coin □ I-:ivoi ic|)lncing $1 nolc willi $1 coin j
S. 874, like similar measures in recent years, eliminates the dollar note. Sponsors
of this legislation know Americans will reject a dollar coin for a paper dollar if al-
lowed a cnoice. And they know the Susan B. failed to circulate primarily because
Congress persuaded Treasury not to eliminate the dollar note, as initially planned.
I recognize the arguments set out by proponents of this idea and believe that spon-
sors of S.874 are to be commended for stepping up to the plate with their ideas
when they know the unpopularity of abolishing the greenback.
63
However, abolishing the dollar note will not be sufficient to force circulation of
the dollar coin over broad public opposition, because there's an alternative to a dol-
lar coin — the $2 note, which the Federal Reserve will return to circulation upon
eliminating the dollar note. Whether through inertia, preference, or outright defi-
ance of an unpopular Government mandate, the American people can simply sub-
stitute $2 notes for dollar notes and continue to use quarters as they do today.
And there's clear evidence that's exactly what they will do. An Opinion Research
Corporation survey conducted this year lor the National Consumers League found
that 64 percent of respondents would use $2 notes over dollar coins. Only 21 percent
would use the dollar coin.
Moreover, there is a lesson to recall from our experience with the Susan B. An-
thony. During the launch of the Susan B., Congress's will to abolish the greenback
faded when it heard from angry consumers, constituents, and media who opposed
the attempt to force circulation of an unwanted coin by denying people the dollar
note. In turn. Congress persuaded Treasury not to proceed with withdrawal of the
dollar note, and the Susan B. failed as a result.
The American people do not want this coin. Congress's resolve to abolish the note
is not fixed in the stars. And — contrary to conventional wisdom of dollar coin advo-
cates— there is a convenient alternative to the dollar coin in the form of the $2 note,
an alternative that will doom the attempt to force the acceptance of the $1 coin.
Overstated Savings
In addition, Mr. Chairman, we believe that advocates have overstated claims
about cost savings and other benefits resulting from replacing the note with a dollar
coin. Their claims are based on lower production and recycling costs over a coin's
30-year lifespan compared to a lifespan of 17 months for the note.
GAO studied this issue in 1990 and 1993. GAO's latest estimate is that over a
30-year period average annual savings would be $395 million in mostly ofT-budget
revenue by substituting a dollar coin for the dollar note. Multiplying this figure
times five has led proponents of a dollar coin to claim potential 5-year savings of
$2 billion or more.
We agree that in the very long run this proposal could produce savings if the
American people could be forced to accept a dollar coin. However, given the public's
well documented resistance to a dollar coin, there's substantial evidence that this
effort will fail. Not only would the Government realize no savings, it would incur
substantial expenses in producing the coin — and in disposing of them once this ex-
periment fails.
Moreover, we are concerned that proponents have greatly exaggerated even the
near-term, 5-year savings potential of a dollar coin. Because of frontloaded costs and
backloaded savings over the first 5 years, CBO concluded that total scorable savings
over the first 5 years would be only $100 million — no savings in the first 2 years,
$20 million in the third year, $30 million in the fourth year, and $50 million in year
5. It should be noted that the CBO estimate does not refiect the production time-
tables and other specifications mandated in S.874. Rather, the estimate is based on
a "generic" dollar coin proposal.
We believe that even this low CBO estimate probably overstates 5-year savings
attributable to a dollar coin. The CBO estimate overlooks several significant appro-
priated costs related to production of a new dollar coin and return flow of circulating
Susan B's. For example, the CBO estimate does not reflect a $20 million public rela-
tions campaign to support elimination of the dollar note, an estimated $23.4 million
in capital expenditures needed in the first year in preparation to produce new dollar
coins, $25 million in production costs for the first 5 billion coins, and the cost of
returning Susan B's to our vaults and melting them down. All of those expenses
must be funded with appropriations in order to produce a new dollar coin.
To put this into perspective, please note the attached cost estimate. (EXHIBIT 2)
Our analysis indicates tnat under current law the Mint would require additional ap-
propriations of $23.4 million in fiscal 1996 and $72.2 million over the next 5 years
for production of a new dollar coin within 30 months of enactment. Costs of comply-
ing with S.874 would be much higher, since its timetable for compliance is much
shorter.
64
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65
Compliance
Our third objection, Mr. Chairman, is one of physical compliance. S.874 calls for
the Treasury to introduce a new dollar coin and to cease issuing dollar notes within
18 months of enactment. The coin is required to be golden in color with metallic
and anti-counterfeiting properties similar to existing clad coinage.
The Mint simply cannot produce sufficient quantities of this particular coin to as-
sure a smooth transition in 18 months as required by S.874. We will require at
least 30 months to buy and install necessary coin production and material-handling
equipment. But the Federal Reserve has called for an even longer transition — 4
years — citing the complexity of introducing a new dollar coin, uncertainty in gauging
its public demand, and the importance of not issuing a dollar coin at the same time
the Fed is completing issuance of new designs for paper currency. We also doubt
whether private sector coin-strip manufacturers have adequate capacity to produce
the quantity and quality of strip needed by the Mint within the 18-month timeline.
Moreover, we will need a new alloy for the golden color. This requirement extends
our production timetable while we research and develop the optimum alloy and test
its wear, suitability for coining, and compatibility for vending machines.
Additionally, the period in which this legislation requires the Mint to produce and
launch a new dollar coin could not be less favorable. Congress has enacted the larg-
est commemorative coin program in our history for 1995 and 1996 — 18 million coins
to raise funds for the 1996 Summer Olympic Games in Atlanta. This massive ef-
fort— a $200 million program — requires us to convert what traditionally has been
a mail order firm into a nationwide retailer serving such partners such as Wal-Mart
and J.C. Penney. And we must do so in half the time a private sector enterprise
would take while also marketing and distributing these coins in 34 other nations.
Besides huge production, marketing, and distribution challenges with commemo-
rative programs, the Mint faces booming demand from Federal Reserve banks for
circulating coinage. Over the next 2 years, demand for circulating coinage is ex-
pected to equal or exceed 1994, when we produced more than 19 billion coins, the
second-highest number on record, and narrowly avoided a national coin shortage.
The Mint is also undertaking multi-year initiatives to improve accounting and
management in compliance with the Chief Financial OfTicers Act ... to streamline
operations and meet a Presidential order to reduce FTE's by 13 percent . . . to re-
form our ailing commemorative business . . . and to enhance profitability and mar-
keting. It is not feasible to launch a new dollar coin and manage these initiatives
successfully while operating at peak capacity.
Underestimated Risks
Mr. Chairman, proponents of the dollar coin have not only exaggerated the sav-
ings potential of a dollar coin, they have ignored substantial risks and costs of fail-
ure inherent in this proposal.
When the Susan B. failed 15 years ago, the Mint had produced 857 million of
them, and we carried over 500 million in our vaults for many years. S.874, however,
requires a much faster ramp-up of production for a new dollar coin than was the
case with the Susan B., for the dollar note would be eliminated simultaneously with
introduction of the dollar coin.
For example, under the provisions of S.874 we estimate that the Mint will need
some 3 billion dollar coins in stock 18 months after enactment in order to fill the
pipeline, and we further estimate we will need 6 to 9 billion coins within 36 months
of enactment to replace the current stock of 4 billion dollar notes. If the attempt
to force circulation of the dollar coin fails, we will not know it until late in this 36-
month period. Therefore, we will not have 500 million unwanted dollar coins on our
hands as we did 15 years ago — we're likely to have more than 10 times that num-
ber.
Failure to force circulation of the new coin will not only mean there will be no
savings from eliminating the dollar note, it will also mean there will be no oppor-
tunity to recover the costs of producing the dollar coin. Moreover, neither the Mint
nor the Federal Reserve Bank has storage capacity for billions of dollar coins. We
will be forced to rent private, secure storage vaults to warehouse the unwanted
coins until a decision is made to melt them down or otherwise disf>ose of them.
Finally, if Americans reject the dollar coin and simply substitute the $2 note for
the $1 note, we may see a rapid increase in demand for quarters for change-making
[)uiTX)ses to augment the $2 note. With our production capabilities stretched to the
imit meeting production schedules for the new dollar coin, the Mint would find it
very difficult to meet a sudden increase in demand for quarters. As a result, it is
possible that regional or national shortages of quarters could ensue.
66
Historical Note
Mr. Chairman, I close with a historical note that may shed some light on why
I believe the future of our Nation's currency Hes elsewhere than the dollar coin.
In the decades before the Civil War, U.S. coinage alone became inadequate to
meet the demands of commerce in our growing Nation. As a result, a multitude of
local and State banks issued their own currency, which traded at face value in the
vicinity of the issuer and at deep discounts, if at all, elsewhere. By 1860, the cur-
rency market v/as in chaos, and financial requirements of the war led Lincoln's Ad-
ministration to issue our first national currency.
Today, a multitude of financial houses issue their own high-tech and low-tech
forms of currency — debit cards, smart cards, and similar types of "E-cash" — creating
an electronic Tower of Babel in the market. These cards "trade" only on the tech-
nology of the issuing institution and cooperating institutions. There is no universal
form of E-cash.
Unlike Lincoln, we face no urgent national crisis today. But we are approaching
the point at which market efficiency may well demand the production of a universal
card that can be used as a substitute for coinage. Yet here we are, at the end of
the 20th century, attempting one final time to force circulation of the oldest tech-
nology of commerce known to mankind.
This is not how we should be investing the leadership and financial resources of
this great Nation. Instead, we should be identifying the American people's interest
in emei^ng "Third Wave" forms of currency and denning the appropriate role of the
Federal Government in the evolution of this technology. We should be looking to the
future of money in our economy, Mr. Chairman, not repeating the mistakes of the
past.
Thank you again for this opportunity to present our views on the proposed legisla-
tion. I would be pleased to answer any questions you may have.
67
DEPARTMENT OF THE TREASURY '^rjC \L
UNITED STATES MINT ""
WASHINGTON, DC. 20220
OIRKCTOtt
OF TMt July 26, 1995
MINT
The Honorable Alfonse M. D'Amato
Chairman
Committee on Banking, Housing and
Urban Affairs
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
In my testimony of July 13, 1995, regarding S-874, I
state that the CBO estimate for savings resulting from substitution
of a dollar coin for a dollar note is overstated because it
"overlooks several significant appropriated costs related to
production of a new dollar coin..." (p. 6).
The intent of this letter is to bring to your attention
a discussion contained in the testimony of Mr. James L. Blum,
Deputy Director, Congressional Budget Office, which is relevant to
this matter. In a section entitled "The Effects on Deficit
Reduction of Converting to Coins," Mr. Blum describes the disparate
accounting treatment accorded coins and notes under BEA scoring
conventions. He notes that the "disparate treatment of the cost of
coins and nores, which has no apparent economic justification.
arises from a series of decisions by the 1967 President's
Commission on Budget Concepts" (p. 5, emphasis added) .
The disparate treatment Mr. Blum describes is at the
heart of my testimony that CBG's estimate of $100 million in
scorable savings in the five-year budget window overstates the true
savings offered by S-874. Mr. Blum states that under these scoring
conventions, "the cost of producing and handling Federal Reserve
Bank notes is reflected in the budget deficit, but the increase in
the cost of producing coins is not." (p. 5). Mr. Blum acknowledges
that "the costs of producing coins are real" (p. 6), but under these
scoring conventions, those costs are not included in CBO's estimate
of costs and savings from S-874.
68
-2-
It is in this context that I testified the CBO estimate
overstates the real savings from S-874. The scoring conventions
under which this estimate was made recpiire recognition of the
savings from eliminating the dollar note but exclude the $72
million in estimated expenses the U.S. Mint will bear to produce
the dollar coin. As Mr. Blum acknowledges, these costs are real.
Under current law Congress must appropriate these funds, and the
American taxpayer will bear the costs. It is only through scoring
conventions which have "no apparent economic justification," in Mr.
Blum's words, that the $100 million in savings is not offset by $72
million in additional costs.
In summary, Mr. Chairman, the actual savings attributable
to S-874 over the first five years of its implementation are closer
to $28 million than the $100 million estimated by CBO under current
scoring conventions. But given those conventions, CBO does not
count the $72 million in additional expenditures the Mint will bear
to comply with S-874.
Thank you again for the opporttinity to present the
Treasury Depari:ment ' s position on S-874. I hope you will make this
letter part of the record of the hearing of July 13, 1995.
i/£V
N. Diehl
tor
States Mint
Senator Paul S. Sarbanes
James L. Blum
Congressional Budget Office
69
I'nited States General Accouniing Office
rjAO Testimony
Before the Committee on Banking, Housing
and Urban Affairs
U.S. Senate
s:s:r„ A dollar coin could
10 im. EDT _. . _ _ _ ^ ^ _ _ ,«.
~-:2i""" SAVE MILLIONS
Statement of L. Nye Stevens
Director, Federal Management and
Workforce Issues
General Government Division
GAO/T.GGD-9S-20J
70
A DOLLAR COIN COULD SAVE MILUONS
The major Western economies all now use a coin for monetary transactions for
the same level that Americans use the paper dollar. Although the United States in-
troduced the Susan B. Anthony 1-dollar coin in 1979, it was not widely accepted by
the public, primarily because the 1-dollar note was not simultaneously eliminated.
GAO reported in 1993 that the Government could save $395 million per year on
average over 30 years by substituting a 1-dollar note. GAO reviewed a recent Fed-
eral Reserve study that updated this estimate to $456 million per year, which GAO
believes is reasonable. The $456 million savings comes from the lower costs of using
longer-lived coins, lower Federal Reserve processing costs, and the interest avoided
on the Federal debt resulting from the seigniorage recognized on a dollar coin. Sei-
gniorage is the difference between the face value and the production cost of a coin
and would be significant because at least 1.5 coins would replace each 1-dollar note,
based on the experiences of other countries.
The Congressional Budget Office (CBO) has estimated a lower savings from the
dollar coin conversion. Seigniorage is not considered a part of the budget, and CBO
does not score interest savings to the Government. Moreover, for scorekeeping pur-
poses under the Budget Enforcement Act, CBO uses a 5-year estimating period.
GAO recognizes CBO^ budget scoring. However, GAO believes that the Congress
should also consider the longer 30-year evaluation period and the lower interest
costs to the Government related to seigniorage.
Based on the foreign experiences GAO studied, GAO notes five essential elements
to help ensure a successful conversion: (1) the 1-dollar note would have to be elimi-
nated; (2) a reasonable transition period would be needed; (3) the coin would have
to be well designed and readily distinguishable from other coins, (4) an adequate
public awareness campaign would be needed, and (5) sustained administrative and
congressional support would be necessary to withstand an initial negative public re-
action.
Treasury officials have been reluctant to support a dollar coin because they — be-
lieve in the strong possibility that Congress, even if it initially approved the elimi-
nation of the dollar note, would bow to public pressure and allow the note to co-
circulate with the coin. They believe, and GAO agrees, this could result in Treasury
having billions of new dollar coins on hand that would not be accepted by the public.
Officials in eight countries GAO contacted reported that they faced initial public re-
sistance to conversions from notes to coins but that this was not unexpected and
could be overcome if properly managed.
Mr. Chairman and Members of the Subcommittee: I am pleased to be here today
to summarize the results of our prior work regarding the proposed reintroduction
of a 1-dollar coin.
Australia, Canada, Japan, and the major Western European economies all now
use a coin for monetary transactions at, and in many cases well above, the level
for which Americans use the paper dollar. Although the United States introduced
the Susan B. Anthony 1-dollar coin in 1979, it was not widely accepted by the public
for reasons I will discuss later in this statement.
Two units of the Treasury Department — the U.S. Mint and the Bureau of Engrav-
ing and Printing — produce coins and notes, respectively, in the United States. While
the 1-dollar note lasts about 1.4 years in circulation before needing to be replaced
by the Federal Reserve System, coins last about 30 years in circulation.
Potential Savings to the U.S. Government
In May 1990, we reported that the Government could save an average of $318
million per year over a 30-year period if the 1-dollar coin were widely accepted and
used.* We used a Federal Reserve System model to estimate the savings. A 1992
study by the Federal Reserve System, which used more current data in the same
model, concluded that the Government could save $395 million per year on average
over 30 years by substituting a 1-dollar note with a 1-dollar coin. In May 1993, we
issued a second report in which we agreed with the 1992 Federal Reserve estimate.^
Recently, the Federal Reserve again updated its estimate, using the latest avail-
able production cost and coin ana currency circulation data. The Federal Reserve
now estimates that the Government could save $456 million per year on average
over 30 years by substituting a 1-dollar note with a 1-dollar coin. We reviewed the
Federal Reserve model and supporting data and discussed the assumptions made
^ National Coinage Proposals: Ldmited Public Demand for New Dollar Coin or Elimination of
Pennies May 23. 1990 (GAO/GGD-90-88).
'IDoltar Coin: Reintroduction Could Save Millions if Properly Managed, May 11, 1993 (GAO/
GGD-93-56).
71
with Federal Reserve officials. We believe that the Federal Reserve's updated esti-
mate is reasonable.
GAO and Federal Reserve estimates assumed that 25 percent of the demand for
1-dollar notes would be replaced by a demand for 2-dollar notes and that two 1-dol-
lar coins would replace eacn remaining 1-dollar note in circulation at that time. This
equates to an overall 1.5 to 1 replacement rate of coins to notes. We based these
assumptions on the experiences tnat Canada and other countries had in their con-
versions.^
The $456 million annual average savings comes from: (1) $128 million from not
f»rinting dollar notes, (2) $7 million in lower Federal Reserve processing costs of dol-
ar coins than of dollar notes, and (3) $536 million in interest savings on the debt
because of decreased Government borrowing resulting from the seigniorage recog-
nized on a dollar coin; less (4) $215 million in lost interest earnings on 1-dollar
notes issued by the Federal Reserve System.** While these costs would not be the
same every year over the 30-year period, they are the average costs per year for
each factor, on a present value basis.
Most of the Government's savings would come from the interest on financing the
debt that the Treasury would avoid from seigniorage earned on the additional coins
resulting from the conversion. The Department of the Treasury defines seigniorage
as the difference between the face value of a coin and the coin's cost of production.
In the model, GAO and the Federal Reserve estimated a coin would cost about $.08
to produce, thus resulting in $.92 seignorage per coin. While by budget convention
seigniorage itself has no impact on the size of tne current budget deficit, it does sub-
stitute for borrowing from the public and thus lowers interest costs to the Govern-
ment. For example, if 10 billion dollar coins were minted and circulated, the Govern-
ment's need to Dorrow or raise taxes would be reduced by $9.2 billion. Therefore,
future budget outlays would be reduced because of lower interest costs to the Gov-
ernment.
The latest Federal Reserve estimate assumes that a 1-dollar coin would be ap-
proved by Congress in early 1996, the Mint would begin to produce a 1-dollar coin
in 1998, and the coin would start to be issued in earlv 1999. This would allow the
Mint at least 24 months to test market and design the new coin, with production
to begin sometime in the subsequent 12 months. We note that S.874 would require
that a new 1-dollar coin be placed into circulation 18 months after its enactment.
The Mint maintains that it would take at least 30 months after enactment to place
a coin into circulation.
Neither we nor the Federal Reserve estimated what impact a 1-dollar coin would
have on the private sector.
The Congressional Budget Office (CBO) in a May 3, 1995, hearing before the
House Banking Subcommittee on Domestic and International Monetary Policy, stat-
ed that budgetary savings from reduced production and processing costs could total
$100 million over the next 5 years and exceed $200 million per year in later years.
CBO further stated that savings could increase if the public was willing to hold a
higher ratio of 1-dollar coins for each 1-dollar note formerly held. We believe that
our 1.5 to 1 ratio of coins to notes is conservative, considering the experiences of
other countries which had replacement ratios of between 1.6 to 1 to 3 to 1.
CBO noted that it is restrained from projecting budgetary savings beyond 5 years.
In addition to CBO's projection that the 1-dollar coin would be cost effective in the
short-term, we believe that the 1-dollar coin should be evaluated as a long-term in-
vestment and that Congress should also consider the savings to the Government
that would accrue over the life of the investment. Accordingly, our estimate covers
a 30-year period.
CBO also stated that its projected cost-effectiveness of the 1-dollar coin did not
include interest savings to the Government, which are not scorable under the Budg-
et Enforcement Act. While we do not dispute CBO's interpretation of the act, we
believe that the interest on the debt avoided by the seigniorage recognized on a dol-
lar coin is a real savings to the Government and should be considered in the deci-
sion making process by Congress.
^In Canada, the replacement of coins to notes ratio was 1.6 to 1 for the 1-dollar note, the
Netherlands exf)erienced a 3 to I ratio for the 5-gilder note, Spain experienced a 2 to 1 replace-
ment for the 100-peseta note, and the United Kingdom experienced a 1.6 to 1 ratio for the 1-
pound note.
^Generally, the difTerence between the face value of notes and the cost of printing them and
an allocation of the Federal Reserve's operating costs is used by the Federal Reserve to purchase
Treasury securities, which make up the Federal Reserve's portfolio. The Federal Reserve's hold-
ings of Treasury securities back up the Federal Reserve notes, which are obligations of the Fed-
eral Reserve System. The earnings from these securities are returned to the Treasury.
72
Lessons Learned From the Susan B. Anthony 1 -Dollar Coin
When the United States introduced the Susan B. Anthony 1-dollar coin in 1979,
the 1-dollar note was not simultaneously withdrawn. In our May 1990 report, we
concluded that the Susan B. Anthony 1-aollar coin did not gain wide acceptance be-
cause the 1-dollar note was not simultaneously eliminated, the coin too closely re-
sembled the quarter, and an effective promotion effort was not made.
Based on tne experiences of other countries, we noted five essential elements for
a successful conversion in the United States: (1) the 1-dollar note would have to be
eliminated, (2) a reasonable transition period would be needed, (3) the 1-dollar coin
would have to be well designed and readily distinguishable from other coins, (4) an
adequate public awareness would be needed, and (5) sustained Administration and
conp*essional support would be necessary to withstand an initial negative public re-
action. We continue to believe that these are the essential elements of a successful
conversion. Moreover, we believe that any congressional decision to allow the public
to choose between the use of a dollar coin or a dollar note will surely mean the fail-
ure of the coin to widely circulate, based on our experience with the Susan B. An-
thony dollar and the experiences in other countries with similar conversions.
Treasury officials in the last two administrations told us that their reluctance to
support a new 1-dollar coin has been based on their belief of a strong possibility
that Congress, even if it initially approved the elimination of the dollar note, would
bow to public pressure in the eleventh hour and allow the dollar note to co-circulate
with the dollar coin. They believe, and we agree, that this could result in Treasury
having billions of new dollar coins on hand that would not be accepted by the public.
Foreign Experiences
As we reported in 1990 and 1993, the major Western economies all now use a coin
for monetary transactions at, and in many cases well above, the level at which
Americans use the paper dollar.
For our 1990 report, we contacted officials from seven European countries and
Canada to obtain information about their experiences in converting low denomina-
tion currency to coins. The officials reported that all of the countries undertook the
conversion to save currency production costs. In addition, all of the countries re-
ported that they faced initial public resistance to the changes but that this was not
unexpected and was overcome by strong determination to enminate the note.
The United Kingdom (U.K) officials said, for example, that as long as notes still
circulate, the pubfic will resist using coins and exert pressure on the Government
to rescind its decision. Interestingly, in 1914, the U.K. introduced a pound note and
stopped issuing the pound coin in 1915. When this conversion from a coin to paper
occurred, people objected to the pound being represented on paper. Also, French offi-
cials said that the public accepted the 10-iranc coin only when the note was elimi-
nated.
Public Resistance to Canadian l>DolIar Coin Short-Lived
For our 1993 report, we commissioned Gallup Canada to poll Canadians regarding
their acceptance of the 1-dollar coin. The nationally representative survey indicated
that 5 years after the coin's introduction in 1987, public disapproval of the coin had
fallen to its lowest point — 18 percent of those surveyed — compared to 36 percent a
year aft«r the introduction. Further, 32 percent of Canadians felt more favorable
about the coin in 1992 than when it was introduced, and only 7 percent felt less
favorable. Overall, 49 percent of Canadians said that they approved of the dollar
coin, 32 percent felt neutral about it, 18 percent disapprovea of it, and 1 percent
refused to answer or didn't know.
We also sent questionnaires to Canadian businesses and associations that were
affected by the conversion, including currency printers, transit companies, an ar-
mored car service, a taxicab company, an association of grocers, an association of
blind citizens, and a vending machine association. The companies and associations
said that most public resistance to Canada's 1-dollar coin lasted between 3 months
to 2 years.
In Canada, the Royal Canadian Mint championed the conversion and was respon-
sible for handling initial public resistance to the 1-dollar coin, which a Mint ofTicial
said consisted of fewer tnan 100 letters of complaint to Parliament and negative
press coverage. To counter initial negative news coverage about the conversion, Mint
officials said they actively promoted the coin in interviews with the media. Further,
Canada's 1-dollar coin had 11 sides and was gold-coiorcd, which made the coin eas-
ily distinguished from other coins.
We concluded that resistance to change also could be overcome in the United
States if the conversion were properly managed. Converting to a 1-dollar coin would
not be painless but, in our view, is lUcely to be more palatable to Congress and to
73
the public in these times of Government downsizing than raising taxes or reducing
Federal spending by a comparable $456 million per year. We included the 1-dollar
coin recommendation in our recent report to Congress on options that could be con-
sidered to reduce the deficit.' We noted, however, that Congress and the executive
branch would have to lead rather than follow public opinion for the conversion to
succeed. We believe that with good planning and determination, a successful conver-
sion would be not only possible but also beneficial.
Mr. Chairman, that concludes my prepared statement. I would be pleased to an-
swer any questions.
'^Addreaung the Deficit: Budgetary Implications of Selected GAO Work for Fiscal Year J996
Mar. 15, 1995 (GA(VOCC-95-2).
74
CBO
TESTEVIONY
Statement of
James L. Blum
Deputy Director
Congressional Budget Office
Creating a New One-Dollar Coin
before the
Committee on Bankmg, Housing,
and Urban Affairs
United States Senate
July 13, 1995
NOTICE
This statement is not available for
public release until it is delivered at
10:00 a.m. (EDT) on Thursday, July
13. 1995.
CONGRESSIONAL BUDGET OFFICE
SECo;VD \ND D STREET.*. S.W .
VlA.SHI>GTON. n.C. 2<I.S1.>
75
Mr. Chairman and Members of the Committee, I appreciate the opportunity to
discuss the cost savings and budgetary impact from the proposal to eliminate the
one dollar bill and replace it with a new one dollar coin. In my statement, I will
make four points:
• Savings to the Government in production and processing costs from substituting
the more durable dollar coin for the Federal Reserve dollar note would be on the
order of $150 million per year when the change is completed.
• Conversion would also have a favorable effect on the budget deficit. The Congres-
sional Budget OfTice (CBO) estimates that over the 1996-2000 period, budgetary
savings would total $100 million as a direct result of reduced production and proc-
essing costs. That estimate is based on a generic proposal tnat contains several
key assumptions, including a 30-month lead time before new coins would be
placed into circulation, a 60-month conversion period, and an increased circulation
of two dollar notes. After the switch to coin is complete, budgetary savings could
exceed $200 million per year — an even larger amount than the Government's sav-
ing on production and processing costs. Those savings, however, would occur well
beyond the 5-year window used by CBO to estimate budgetary effects.
• Differences between estimates of savings to the Government by CBO, the General
Accounting OfTice (GAO), and the Federal Reserve arise from measuring different
items over different time frames, not from significant discrepancies over basic as-
sumptions.
• Switching from one dollar bills to one dollar coins could also have secondary ef-
fects that could produce additional budgetary savings. Those effects consist of re-
ductions in the interest costs on the Government s debt and are not scorable
under the Budget Enforcement Act (BEA). They would result only if the public
was willing to hold a higher value of coins than notes; for example, if the public
was willing to hold two one dollar coins for each one dollar note formerly held.
Cost Savings to the Government
The total cost of producing and processing coins and currency could be reduced
by substituting dollar coins Tor dollar notes oecause the long-run annual cost of a
coin is lower than the corresponding cost of a note. A dollar coin would cost about
8 cents to produce, which is more than twice the 3.8 cents that it costs to produce
a dollar note. The higher initial cost of the coin is more than offset, however, by
its significantly longer useful life (30 years versus 1.5 years). In addition, the costs
to the Government of maintaining the quality and integrity of coins are lower than
they are for notes, which must be inspected individually for fitness and counterfeits.
By contrast, coins can be checked by weight.
One way of expressing the savings is to compare the average yearly cost to the
Government of meeting the public's need for a dollar of coin or currency over the
expected 30-year Ufe of a coin. If the Government meets that need by furnishing a
note, it will nave to produce 20 one dollar notes over the 30-year period to replace
continuously those that wear out in order to keep a single one dollar note in circula-
tion. Thus, the average annual production cost for notes is about 2.5 cents (3.8 cents
divided by 1.5 years) per dollar in circulation. By contrast, if the (government meets
the public's need for one dollar currency through coins, the average annual produc-
tion cost is only 0.27 cents (8 cents divided by 30 years) for each dollar in circula-
tion. In addition, the more frequent and higher processing cost of notes adds to the
cost of keeping a dollar note in circulation. Therefore, the Government saves be-
tween 2 cents and 3 cents per year for each dollar coin that replaces a dollar note.
That would add up to a savings of $120 million to $180 million a year if $6 billion
in notes were replaced by an equal amount in coins.
However, other factors could affect the total cost savings of replacing the one dol-
lar note. Most important, if the assessments of GAO and the Federal Reserve are
correct, two coins will be needed to replace each dollar note. In addition, a more pre-
cise calculation of the savings to the Government in production and processing costs
in any particular fiiture year requires a lai^e number of assumptions and projec-
tions. Those include the projected year-by-year growth in the demand for dollar
notes under current policy; the 30-year outlook for the cost of producing and han-
dling notes and coins; the extent to which the costs of production and processing
are variable over the long run; the speed at which the Mint's capacity for coin pro-
duction can be increased; the rate at which the public will be willing to accept coins
for notes; the increase in demand for other denominations of notes that will result
from withdrawing the one dollar note; the effect of that change on the demand for
other denominations of coin; and the appropriate discount rate for converting fixture
costs to present values.
Both the Federal Reserve and GAO have developed spreadsheet models of those
cost processes. The Federal Reserve, for example, estimates that the steady State
76
savings to the Government in production and processing costs from converting to a
one dollar coin would be $164 million per year (in 1994 dollars). The General Ac-
counting Office has stated that those average annual savings would be $135 million.
The Effects on Deficit Reduction of Converting to Coins
Under BEA scoring conventions, the budgetary and cost savings from substituting
dollar coins for dollar notes are not identical. In fact, replacing notes with coins
would reduce the budget deficit by more than the total savings to the Government
in production and processing costs for the 1996-2000 period. That difference arises
because the reduction in the cost of producing and handling Federal Reserve Bank
notes is reflected in the budget deficit, but the increase in the cost of producing
coins is not.
The disparate treatment of the cost of notes and coins, which has no apparent eco-
nomic justification, arises from a series of decisions by the 1967 President's Commis-
sion on Budget Concepts. The commission decided to exclude the Federal Reserve
Banks from the budget and to count the payment to the Government of Federal Re-
serve earnings as a Governmental receipt — that is, a Federal revenue. Those earn-
ings cover the costs of operations for the Federal Reserve, including the costs of pur-
chasing and processing currency. Consequently, a reduction in the cost of producing
and processing Federal Reserve notes is reflected in higher Federal Reserve earn-
ings and budget receipts. By contrast, the cost of producing coins is reflected in the
budget as an outlay. But it is offset, dollar for dollar, by counting a portion of the
value of the coinage produced as offsetting receipts in the budget. Therefore, al-
though the costs of producing coins are real, those costs do not increase the budget
deficit.
Preliminary figures from the Mint indicate that changing to one dollar coins
would require spending $72 million over the 1996-2000 period. That amount in-
cludes $21 million for new equipment, approximately $20 million for the Mint to
carry out its one-time public awareness campaign, and $3.8 million for melting
down the remaining Susan B. Anthony dollars. By established budget convention,
those costs would be financed from the "profits," or seigniorage, that accrues to the
Government from the difference between the cost of producing coins and their ex-
change value. Thus, the added costs of producing coins would not afTect net budget
outlays or the reported deficit.
It should be noted, however, that start-up and initial production costs at the Mint
for new dollar coins would lead to small increases in Federal borrowing and interest
costs. At first, the seigniorage to offset the costs of new coins would derive from
coins manufactured under current law. Net seigniorage, which is used as a means
of financing the budget deficit in lieu of borrowing from the public, would be reduced
as a result. In later years, introducing the dollar coin would produce gains in sei-
gniorage. BEA conventions, though, preclude scoring the interest effects of Federal
transactions.
Consequently, the scorable budgetary savings from substituting one dollar coins
for one dollar notes is simply the Federal Reserve's lower cost from producing and
processing a smaller volume of notes. The savings would be reflected in the increase
in the Federal Reserve's net income that is paid to the Federal Government each
year. Those reductions in Federal Reserve costs and the increased Federal receipts
are projected to total $100 million during the next 5 years under the generic pro-
posal examined by CBO (see Table 1). That estimate assumes a 30-month lead time
for new dollar coins to be placed into circulation, an annual production capacity at
the Mint of 2 billion new coins, a phaseout of dollar notes over a 5-year period, and
increased production of two dollar notes.
77
TABLE 1 . ESTIMATED BUDGETARY IMPACT FROM THE ONE-DOLLAR COIN
(By fiscal year, in millions of dollars)
Five- Year
1996 1997 1998 1999 2000 Total
Increased Federal
Reserve Earnings
(Revenues)
0
0
20
30
50
100
Increased U.S. Mint
Costs (Outlays)
23
3
10
22
14
72
Increased Offsetting
Receipts (Outlays)
-23
-3
-10
-22
-14
-72
Net Savings
0
0
20
30
50
100
SOURCE; Congressional
Budget
Office.
Budgetary savings above those recognized in the CBO estimate would occur if the
proposal were analyzed for years beyond the 5-year budget window. Because of the
30-month lead time to produce new coins, no budgetary savings would occur in 1996
or 1997. Further, in 1998, the Federal Reserve would reap the benefits of lower
costs from substituting coins for only half a year. Even by 2000, the Federal Reserve
would still be incurring some costs from purchasing and processing dollar bills.
Therefore, the average annual budgetary savings over the first 5 years are much
lower than they would be over the long term.
Different budgetary savings would result if the Congress shortened the phaseout
period of dollar notes. Shortening the phaseout period would also affect the time-
pattern of budgetary savings.
The experience of other countries suggests that the One Dollar Coin Act of 1995
(S.874) may require revisions in its timing to become more workable. That experi-
ence indicates that a quick transition from notes to coins increases the likelihood
of public acceptance. A Sf)eedy conversion, however, requires that a large stock of
new coins be minted before the changeover. Although S. 874 would phase out dollar
notes over about 18 months, it would not allow sufficient lead time for the Mint to
produce the coins to replace those notes. The Mint has stated that it needs a 30-
month lead time. The legislation, however, requires that new dollar coins be placed
into circulation within 18 months of the date of enactment. Thus, if the $6 billion
in dollar notes now in circulation were phased out within 18 months of the introduc-
tion of new coins, the Mint would be able to supply only 3 billion replacement coins.
Even with a 30-month lead time to produce dollar coins, the Mint's limited annual
production capacity of 2 billion coins would almost certainly create shortages of one
dollar currency. Those shortages would be likely to slow the conversion and raise
public resistance to the changeover. That resistance could prompt lawmakers to
allow dollar notes to remain in circulation or even worse to reconsider the change-
over during midcourse. Those developments could lead to the failure of a new dollar
coin similar to that of the Susan B. Anthony dollar, but on a much larger scale.
One solution would be to extend the lead time to produce new coins. That would
enable the Mint to create a preconversion stockpile of several billion coins. Another
solution would be to expand production capacity at the Mint to accommodate, for
example, the manufacture of 3 billion or 4 oillion coins per year. Both alternatives
could substantially reduce the likelihood of currency shortages and the risk of fail-
ure, but would involve a large up-front investment and change the budgetary sav-
ings from the proposal.
78
Differences Between Estimates of Savings
The General Accounting OfTice and the Federal Reserve have projected much larg-
er budgetary savings to the Government from substituting the one dollar coin for
the one dollar note than has CBO. Those larger estimates, however, are not the re-
sult of disagreements over basic assumptions, such as the cost to produce coins or
process notes. Rather, the dissimilarities stem from difierent approaches, items of
measurement, and time frames.
CBO's estimate covers only the direct budgetary savings from replacing dollar
notes with coins over the 5-year budget window — that is, the reduced purchasing
and processing costs at the Federal Reserve. Although the Mint would incur new
costs, they would be offset by seigniorage and net to zero in the budget. Further,
gains in seigniorage from the new coins do not factor into calculations of the Federal
budget deficit. In accordance with the President's Commission on Budget Concepts,
seigniorage is treated as a means of financing; that is, it helps only to finance —
not reduce — the budget deficit.
By contrast, the savings estimates of the Federal Reserve and GAO measure the
long-run impact from substituting dollar coins for notes over a 30-year period. Con-
sequently, tnose estimates incorporate items that do not have direct budgetary ef-
fects. For example, additional costs at the Mint for start-up and operations, reduced
portfolio earnings to the Federal Reserve System, and diminished Government bor-
rowing costs are netted out in their estimates of savings. In particular, the lower
Federal Reserve earnings and reduced Government borrowing costs are large items
in those estimates, and consequently, anticipated average annual savings balloon to
upward of $400 million.
The fundamental source of those additional savings cited by GAO and the Federal
Reserve is an assumption that the public will choose to hold more than a single one
dollar coin for each one dollar note that is withdrawn from circulation. Specifically,
once the conversion to coins is complete, the Federal Reserve and GAO assume that:
• Twenty-five percent of the value of one dollar notes in circulation will be held in
two dollar notes; and
• For the remaining one dollar notes formerly in circulation, the public will choose
to hold two coins for each note.
Therefore, the Federal Reserve and GAO estimate that $9 billion in one dollar
coins and $ 1.5 billion in additional two dollar notes would replace the $6 billion
in one dollar notes now held. As a result, the public's total holding of coins and
notes is assumed to increase by $4.5 billion.
The General Accounting Onice and the Federal Reserve cite the experience of
other countries that have converted a currency note to a coin to support their as-
sumption that the replacement rate will be much higher than one-to-one. In the
cases studied, a replacement rate of 1.6 to 4 coins for each note withdrawn was re-
ported. Whether those estimates and the experience of other countries would be di-
rectly applicable to the experience of the United States in a transition to a one dol-
lar coin is uncertain. Further, an increase in demand for one denomination of coin
may have an ofTsetting effect on the demand for other denominations of coin. At the
same time, an increase in demand for coins could happen here. Explanations for
high replacement rates of coins for notes include:
• The apparent cross-cultural practice of setting aside one's pockets full of coins, but
retaining notes, when dressing and undressing;
• The tendency of coins, to a much greater extent than notes, to remain for long
periods of time in vending machines awaiting collection where they are unavail-
able to meet public demand for coinage;
• A shortage oi notes before the coins are introduced; and
• The weight of coins that raises their explicit and implicit transportation costs.
Their heaviness tends to delay their movement — whether by commercial shipper
or personal portage — relative to notes from places where they are in surplus to
places where they are in demand. Delayed shipment translates into an increased
demand for coins compared with the notes they replace.
Other Possible Budgetary Effects
If the public chooses to hold two coins for each note in circulation, significant sec-
ondary effects would have a positive impact on the Federal budget. That develop-
ment would permit the Government to finance $4.5 billion of Federal debt by issu-
ing non-interest-bearing coins rather than interest-bearing debt. At a 6 percent rate
of interest, the Federal Government would save $270 million in interest a year by
substituting $4.5 billion in Treasury coins for Treasury securities. With reduced in-
terest costs in the first year, borrowing from the public would be lower in all subse-
quent years and the interest savings would snowball into an ever larger sum.
79
That assumption about cumulative interest savings explicitly presumes that lower
debt-service costs would be reflected in lower deflcits. CBO does not score those po-
tential indirect effects because of the scoring convention of not counting debt-service
costs or savings for specific legislative proposals. Moreover, replacing two coins for
one note could not happen within the 5-year or even a 7-year window in which CBO
estimates the budgetary effects of legislation. Given the Mint's required lead time
and production capacity constraints, an annual rate of currency growth that hovers
around 5 percent, and the increased circulation of two dollar notes, we estimate that
a replacement ratio of two coins for one note could not occur before 2005.
Thus, it may be that the replacement rate of coins for notes will be greater than
one-for-one. However, we regard those effects and the impact on the cost of Govern-
ment borrowing as far from assured. If so, it will increase the portion of Federal
obligations held by the public in non-interest-bearing form, thereby reducing net in-
terest outlays and leading to further budgetary savings.
Conclusion
Although replacing the one dollar note with a new one dollar coin would clearly
reduce the costs of producing and processing currency for the Federal Government,
resulting in budgetary savings, other factors are worth taking into consideration be-
fore enacting any proposal. The importance of a convenient currency, an efficient
payments system, and a coin that is well-accepted by the public need to be consid-
ered in an informed and reasoned decision to change our national system of cur-
rency.
PREPARED STATEMENT OF WILLIAM C. BUETOW
Treasurer & Senior Vice President, Finance, Chicago Transit Authority
July 13, 1995
Mr. Chairman and Members of the Committee, my name is William Buetow, I am
the Treasurer and Senior Vice President, Finance, for the Chicago Transit Author-
ity. I am also here on behalf of the American Public Transit Association which rep-
resents over 400 transit properties across the Nation. I am here to speak in favor
of Senate Bill 874, which allows the VS. Government to issue a fully identifiable
one dollar coin in place of the current dollar bill.
The Chicago Transit Authority is one of the largest processors of one dollar bills
in the Nation. On an annual basis we collect and process approximately $123 mil-
lion in paper currency. Our ability to collect and process one dollar bills has im>
f>roved over the years. However, the issuance of a one dollar coin will eliminate the
abor intensive problem of processing dollar bills and save the Chicago Transit Au-
thority $2-4 million annually in these costs alone. On the national level, research
has shown that $124 million in cost savings would result if the dollar coin replaced
the dollar bill. I feel that this amount accounts for the processing cost savings alone
and is understated.
More cost savings within the transit industry can be achieved when other ex-
penses, such as, equipment purchases and token sales, are added to the cost of ac-
cepting and handling one dollar bills are considered. First, I would like to explain
the potential for savings in the area of processing dollar bills. The cost to process
one thousand dollars worth of one dollar bills at the CTA's Counting Operations fa-
cility costs approximately $22.00. The cost to process the same amount in coin falls
dramatically to $1.65.
The reason for the lar^ cost difference in processing is due to the fact that han-
dling paper currency is much more labor intensive. Coin processing is more efficient
due to tne higher degree of technology and availability of counting machines. To
date, our experience has shown that no technology exists to fully process paper cur-
rency. The oifficulty is enhanced by the FederalReserve's requirement to have all
paper currency "faced" when stacked — by this I mean all one dollar bills must be
stacked with the portrait of George Washington facing the same direction. Again,
there is no technology available, so our money handlers must stack and face the
bills by hand.
With the general philosophy of deficit reduction becoming more evident in the
Federal Government, transit authorities, like the Chicago Transit Authority, must
lo<^ at new ways to get the most out of our limited resources. The issuance of the
dollar coin will not only provide processing cost savings, it will give transit prop-
erties the flexibility to provide better fare structures.
80
Over the years, the Chicago Transit Authority has been limited in its own fare
structure because it has taken a number of steps to avoid the problems associated
with dollar bills. The problem with dollar bills first became a monumental problem
when our fares were raised to 95 cents in 1982. Customers flooded the fareboxes
with dollar bills and we encountered a multitude of jammed fareboxes. Our solution
was to increase the level of technology of our fareboxes so dollar bills could be ac-
cepted. This reauired a capital investment of $15 million. The cost of purchasing,
maintaining ana updating this technology over the years is a capital expense that
is shared by the Federal Government.
As a result of the increased dollar bill usage, the Chicago Transit Authority began
emphasizing the use of our transit token. It has been our board's policy to make
the tokens available at a discount as a means of enticing customers away from
using one dollar bills. Again, keeping in mind that tokens, luce coins, are less expen-
sive to process. Unfortunately, we nave also incurred other costs associated with
token usage, such as commissions for private sales outlets and the periodic resupply
costs. The aljility to substitute dollar coins is an important factor that many transit
properties using tokens would consider.
Finally, if the issuance of a dollar coin becomes a reality, the ability of the Chi-
cago Transit Authority to assume its usage in fareboxes and turnstiles will not be
a significant problem. There will, of course, be some minimal costs associated with
the change, but the savings in handling and processing costs would more than make
up for any initial changeover expenses. An added benefit is that use of a coin in-
creases the ability of passengers to board versus those with dollar bills.
I fully believe that at this point in time, an identifiable dollar coin is an absolute
necessity in order for us to exist in the world today. Transit properties in other
countries, especially Canada, have had success with the dollar coin. The transit in-
dustry, including the Chicago Transit Authority, fully supports the issuance of a
fully identifiable dollar coin to replace the dollar bill. It is smart, it is efficient and
it needs to happen.
Additional documentation and letters of support will be included with the Chicago
Transit Authority's written statement for the record.
81
STATEMENT
OF
TOMMY E. LOOPER
EXECUTIVE VICE PRESroENT/CFO
THE ANCHOR BANK
FOR
THE AMERICAN BANKERS ASSOCIATION
ON
S. 874, THE U.S. ONE DOLLAR COIN ACT OF I99S
BEFORE THE
SENATE BANKING COMMITTEE
UNITED STATES SENATE
JULY 13, 199S
82
Mr. Chairman and Members of the Committee, I am pleased to be here to testify
regarding S.874, 'The U.S. $1 Coin Act of 1995" on behalf of the American Bankers
Association.
The American Bankers Association (ABA) u the only national trade and profes-
sional association serving the entire banking community, from small community
banks to large bank holding companies. ABA members represent approximately 90
percent of the commercial banking industry's total assets, and about 94 percent of
ABA members are community banks with assets less than $500 million.
The Anchor Bank is a $380 million community bank with 15 branches
headquartered in Myrtle Beach, South Carolina. My duties at the bank encompass
oversight of the operations area including all teller functions.
K enacted, the currency reform proposal under discussion (S.874) would create a
new circulating $1 coin as a replacement for the circulating $1 bill. Proponents of
the legislation Delieve that eliminating the $1 bill would be sound governmental pol-
icy. Tney maintain that there are substantial governmental budget savings to be
gained by minting $1 coins and eliminating the $1 bill. They also maintain that end-
ing production oi the $1 bill would free the printing capacity of the Treasury's Bu-
reau of Engraving and Printing and allow a rapid introduction of secure, high-value
bills as a defense against a growing counterfeiting problem.
We agree that these are worthy goals. But they will not be realistically advanced
by S.874, and the ABA cannot support the proposal. Further, the savings to the
(jfovemment are vastly overstated if not totally illusory. The lack of validity of the
savings claim has recently been addressed by the Director of the Mint, Philip Diehl,
and others. In addition, these budget calculations do not take into account the sub-
stantial private sector costs which would be incurred and new operational problems
created for banks and others. We have serious concerns that the introduction of a
new coin would place a financial and operational burden on banks and our cus-
tomers, and that the American public would again reject a $1 coin to which they
are opposed.
The Requirements for Successful Implementation
It is possible to ameliorate some of the projected cost increases created by a new
coin, by working with the Congress and the Treasury Department to minimize the
possibility of failure of a new $1 coin, and to reduce the operational impact to a
manageable level. The requirements are tough. Unless they are met, the introduc-
tion of a new coin would impose significant operational and financial burdens on
banks, commercial entities and the public at large.
The necessary requirements for successful introduction of the new $1 coin are:
• that the coin replace all $1 bills in production and especially all $1 bills within
the Federal Reserve System,
• that $1 coin production and stockpiles are sufficient to accommodate demand be-
fore the $1 bill is discontinued,
• that the $2 bill be printed and stockpiled in sufficient quantities to accommodate
demand before the $1 bill is discontinued, and
• that the $1 coin be the same diameter, thickness, and weight as the Susan B. An-
thony $1 coin, but with distinguishing characteristics from the Susan B. Anthony
$1 coin.
Primary Issues for the Banking Industry
There are three primary issues for the banking industry, the expected rejection
of the proposed coin by the public; the cost of retrofitting or acquiring coin handling
equipment; and the ongoing operational issues related to the weight of the proposed
coin.
The Expected Rejection of the Proposed Coin by the Public
Mandating the termination of the $1 bill, against the public's wishes would be
viewed as one more example of big Government in Wasnington dictating to the
American public.
A CNN/Gallup poll done for USA Today shows that 77 percent of the American
public opposes tnis proposal. There are many reasons for this opposition. There are
widely held fears that vending prices will rise after the new coin is introduced. And
the $1 bill has a symbolic value for the general public.
It is also dear that there would be some economic impact on the retail economy
because of the increased transportation costs associated with moving the heavier
coins around. These costs could be passed through to retail institutions who use
these coins, and ultimately to the public.
Surveys and common sense show that the average person does not want to carry
around a large number of $1 coins. Even coin proponents acknowledge that most
83
people would be compelled to choose the historically unpopular $2 bills as a replace-
ment. As far as we can determine, the budget impact analysis does not fully reflect
this shift. The budget savings to the Government are largely illusory, while the
costs to the public are real. Tne chances for a successful introduction are also lower
than $1 coin proponents acknowledge.
According to the 1990 GAO report, "National Coinage Proposals":
"Mint, BEP, and Treasury officials said they believed foreign experiences
may not be valid indicators of the prospects the United States would have
in mandating a $1 coin in view of (1) the parliamentary form of government
characteristic of these countries, which makes it easier to impose unpopular
changes on the public; (2) the central banking systems most of these coun-
tries nave, whicn increases the amount of control the government has over
the banks; and (3) the smaller scale on which these countries produce cur-
rency and coins. Mint, BEP, and Treasury officials all agreed that because
of these basic differences it would be much harder for the United States to
have success in substituting a $1 coin for a note." [Emphasis added]
Bankers most of all fear a replay of the Susan B. Anthony fiasco in which the
new coin would be withdrawn after the banking industry incurred significant ex-
penditures to accommodate it. In fact, banks still have to deal with the not infre-
quent appearance of the huge Eisenhower $1 coin. Asking banks, retailers, and the
public to face a third modem $1 coin is unfair.
When the Susan B. Anthony was introduced, teller lines grew longer due to cus-
tomer complaints and education efTorts on this new coin. While there were a few
who stood m line specifically to get Anthony Dollars, most customers refused them
when offered the com in transactions.
When the U.S. Postal Service placed more than 1,000 self-serve stamp machines
in Post Offices last year, it acquired equipment that could accept and dispense the
Susan B. Anthony $1 coin. Customers who insert a $20 bill to purchase a book of
stamps are rewarded with 16 Anthony Dollars, 3 quarters and 1 nickel. Bank
branches near Post Offices see an increased volume of these dollar coins, as the pub-
lic rejects them and exchanges them for bills.
The Cost of Retrofitting or Acquiring Coin Handling Equipment
Banks use electronic and mechanical coin sorting, coin counting, and coin wrap-
ping equipment to process coins. Some of the existing equipment is capable of ac-
cepting Anthony Dollars; some can be retrofit to accept the Anthony Dollar, but not
corns of other dimensions. Some alternative $1 coin aesigns would not work in any
coin handling equipment. Even the members of the Coin Coalition insist that the
new coin be of the same dimensions and weight as the Anthony Dollar.
Today, the volume of Anthony Dollars in most banks is small enough that without
the equipment to count and wrap these coins by machine, that processing can be
done by nand. At the American Bankers Association's 1993 National Operations and
Automation Conference, attendees (primarily community banks) were asked wheth-
er their coin handling equipment could accommodate the Susan B. Anthony Dollar
coins. Less than 20 percent of attendees indicated that their bank had the necessary
infrastructure in place. Some of the equipment, notably drum coin sorters, cannot
be retrofit to accommodate new coins. Should a new $1 coin be minted, expensive
new coin handling machines would be required.
According to a survey of several ABA Committees and several coin handling
equipment vendors, the average community bank may be required to spend between
$6,500 and $9,500 to replace their coin sorting and wrapping equipment, cash draw-
ers and coin racks if a new $1 coin begins to circulate widely- For the Nation's
10,000 community banks these start-up costs might easily top $80 million.
No one can predict what the full impact of wider circulation of the Susan B. An-
thony Dollar would be on the public or on the operations of banks, but their ex-
panded circulation would raise concern in our minds. Circulating $1 coins of any de-
sign creates operational problems for the back room operations of banks and the
front lines of tellers. We oppose the minting for circulation of any $1 coin.
Due to an increase of usage by the Postal Service and some vending machine op-
erators and a corresponding decrease in stockpiles, the Mint, at some point, may
be asked to produce more Susan B. Anthony coins to accommodate the specialty use
of these coins.
We will cooperate fully with the Treasury and the Federal Reserve if dollar coin
legislation passes, but we believe that this Congress should be looking toward the
future. Americans began with coin money, then adopted paper money, and are mov-
ing in the direction of electronic money. Expenses incurred in a coinage retrofit
would divert money away from investments in more innovative retail payment deliv-
ery methods.
84
Business Week had a cover story last month devoted to electronic money, showing
that banks are hard at work developing new secure and efficient payment systems.
Today the Mint is looking at the question of whether they should "mint" electronic
money. We are grateful tne Mint has begun to publicly oppose this coin legislation
as ill-considered and counterproductive.
The Ongoing Operational Issues Related to the Weight
OF THE Proposed Coin
In addition to the capital expenditures required to handle a new coin are the vari-
able costs that banks would incur if a $1 coin began to circulate widely. The trans-
portation costs of currency would rise dramatically because of the significant dif-
ference (7+ times) between the weight of a Susan B. Anthony $1 coin and a $1 bill.
Beyond the increased costs of armored car transportation fees it is also likely that
the greater weight will cause an increase in workers compjensation claim costs.
An informal study, of the ABA's Corporate Operation Committee and Community
Bank Operations Committee, revealed that, on average, 25 percent of the number
of coins and bills flowing through their bank consisted of the $1 bill. The total
weight of coins and currency fiowing through their banks would approximately dou-
ble if the production of the $1 coins is set at the same volume as the current produc-
tion level of the $1 bills. In fact, the GAO study, mentioned previously, indicated
that the replacement would be closer to two coins produced and handled for every
$1 bill produced and handled today.
At my bank the tellers carry only paper currency and quarters from the vault to
the teller line. The smaller coins remain locked up under the counter next to the
teller because of their weight and small value. The pennies alone weigh nearly 75
lbs. The $1 coins would also be locked up in the vault at night If the $1 bill is re-
placed by a $1 coin of the same weight as the Anthony Dollar on a one for one basis,
the weight carried by the tellers at my bank would increase from 51.8 lbs to 75.81
lbs.
Conclusion
In summary, the ABA opposes S.874. However, if a new $1 coin is created, the
Congress and the Treasury should adopt all of the difficult steps we consider nec-
essary to ameliorate the pain of the introduction of a new circulating $1 coin, and
to ensure it is workable.
\I}^S:2^
85
NATIONAL
AUTOMATIC
MERCHANDISING
ASSOCIATION
Serving the Vending / Foodservice management industry
July 13, 1995
To The Commiuee on Banking, Housing and Urban Affairs
United Slates Senate
STATEMENT OF THE NATIONAL AUTOMATIC MERCHANDISING
ASSOCUTION
IN SUPPORT OF A CIRCULATING $1 COIN
James A. Rost, President and CEO
HEACK3UARTERS: 20 N Wacker Drive, Chicago. IL 60606^102 (312) 3460370 FAX (312) 704-4140
EASTERN OFFICE: 11718 Bowman Green Drive. Reston, VA 22090-3501 (703) 435-1210 FAX (703) 435-6389
SOUTHERN OFRCE: 1640 Powers Ferry Road, S E., Bldg. 24, Manena. GA 30067 (404) 98&O048 FAX (404) 98&O404
WESTERN OFnCE: 16030 Ventura Boulevard. Encino. CA 914362745 (818) 783*363 FAX (818) 783-0232
86
N A M A is the national trade association of the merchandise vending and con-
tract food service management industry. It is incorporated in the State of lUinois
as a non-profit organization, and maintains its principal office at 20 N. Wacker
Drive, Chicago, Illinois. NAMA also has offices in Reston, Virginia; Encino, Califor-
nia; and Marietta, Georgia. Its membership includes approximately 1,800 vending
and food service management companies including branches, 65 vending machine
manufacturers and 600 companies that supply products and, services to the indus-
try. NAMA was founded in 1936 to promote the common business interests of the
merchandise vending and contract food service management industry.
Why the Vending Industry Needs the Dollar Coin
Inflation has made a higher denomination coin an absolute necessity, not only for
the merchandise vending industry but for other coin-sensitive businesses and orga-
nizations and for consumers who have historically relied upon the convenience of
coins for the purchase of low-priced goods and services. In the early 1960's, one coin
(a quarter) was enough to purchase a beverage and a snack. Today that same pur-
chase requires /bwr to five quarters — a dramatic loss of consumer convenience, which
often means customers can't make the purchase because they don't have enough
pocket change. Additionally, demand has grown for larger sized refreshments,
entrees and even full meals in vending machines. As a result, many food items like
these sell for well over $1 today.
Without a widely circulating $1 coin, vending operators have been, and continue
to be, forced to install bill acceptors costing up to $400 on most of their machines.
Handling and service costs have also risen, while customer service has slowed due
to the difficulty of "feeding" paper bills into the acceptors. This problem is growing
due to the increasingly poor condition of circulating $1 bills.
Under present circumstances, most machines that give change must return large
quantities of quarters when customers insert higher denomination bills. As a con-
sequence, a vending machine can be quickly emptied of quarters and prematurely
put out of service while weighing down the customer with quarters. For example,
a customer using a $5 bill to purchase a 75^ item will receive 17 quarters in change!
For these and other reasons, bill acceptors on vending machines are not the solu-
tion to the absence of realistically valued U.S. coinage. A widely circulating $1 coin
would sharply reduce these costly additional equipment investments and handling
costs. It would also shorten transaction times and restore consumer convenience.
Vending Machines are Ready for the New Coin
Beginning in the early 1980's, in anticipation of the eventual circulation of the
Anthony $1 coin, the vending industry began manufacturing and installing coin
mechanisms capable of accepting the Anthony coin. As new vending machines were
purchased, most included the Anthony coin capability in the belief that a widely cir-
culating $1 coin must eventually become a reality.
Encouraged further by the proposed legislation calling for a new coin and the
phase-out of the $1 bill, vending companies continued to acquire and place into serv-
ice vending equipment capable of handling the Anthony dollar, anticipating that the
new coin would work in existing Anthony coin mechanisms. Electronic coin mecha-
nisms sold to the vending industry since the mid-1980's are models that are de-
signed and tuned to take the present $1 coin. Our industry's cumulative investment
for this capability is enormous, since most machines on location today were pur-
chased since that date.
Accordingly, it is critical to our industry that the proposed new coin has the same
technical operating specifications as the Anthony dollar.
Size of the Vending Industry
Industry surveys report roughly 4,800,000 vending machines on location through-
out the 50 States, providing a convenient 24-hour unattended point-of-sale, com-
monly where no other service can feasibly be made available. Of these machines,
about 80 percent are capable of accepting the Anthony $1 coin. Industry sales, pre-
dominantly food and refreshments, are reported to exceed $28 billion. Vending cus-
tomers average 125 million such purchases every day.
The merchandise vending industry is essentially part of the small-business com-
munity. Of the firms that provide vending services, the majority have 5 or fewer
employees. These small enterprises, together with the national and regional vending
companies and vending equipment manufacturers, employ in excess of 250,000 peo-
ple. Hundreds of other companies sell goods and services to the vending industry,
adding many thousands more to the number of people whose families dejjend on the
economic health of the vending industry.
87
The Claim that Vending Machine Prices will be Raised
The introduction of a new, well-designed dollar coin of the same size as the An-
thony dollar will not lead to higher vending machine prices. If anything, it will help
to hold down vending machine product prices.
Most machines manufactured after the new coin circulates will not require a bill
acceptor. This will reduce the cost of these machines and thus help to hold down
vending machine product prices. Because vending machines will no longer need bill
acceptors it will not be necessary to modify existing dollar coin mechanisms to give
back one dollar coins in change.
As previously stated, an estimated 80 percent of the Nation's merchandise vend-
ing machines are capable of accepting an Anthony-sized dollar coin. So the claim
that the vending industry will experience significant retooling costs is simply un-
true. The capital investment has already been made.
As for the suggestion that vending machine prices will be raised to $1, this is also
untrue. Most vending machines already accept dollar bills. Why haven't products
sold through these machines already been raised to $1? Because of competition!
During the past 10 years, the period during which bill acceptors came into promi-
nent use, the price of canned soft drinks rose an average of 2.9 percent per year
(from 50c to 65c) compared to an annual CPI increase of 3.8 percent. Obviously,
the installation of bill acceptors during this period had no influence upon the selling
price of the product. The fierce competition in the vending industry, as well as from
outside the industry — from convenience stores, mobile snack trucks and from work-
ers who can always carry their lunch to work in a brown bag — will always protect
the American consumer from artificial price increases.
Conclusion
In summary, the vending industry and its customers are heavily dependent upon
widely circulating coins with values that relate realistically to today's prices of rel-
atively low-cost products and services. Today the convenience and ease of making
a purchase from a vending machine is at an all time low! The industry has been
preparing for the $1 coin for more than a decade. Paper bill handling has been a
costly stopgap measure and offers no solution to the problems caused by grossly un-
dervalued circulating U.S. coins.
America is the only major country that does not have a circulating coin with a
value above the cost of most vended products. Germany, England, France, Japan,
Canada, Australia and many other countries have made coin and currency correc-
tions to reflect the reality of decades of inflation. They have created coins that are
far more appropriately valued for vending and other cash handling businesses. In
each case they have eliminated the paper bill of equivalent value. A widely circulat-
ing $1 coin, combined with the essential removal of the $1 bill, will give the United
States a much more efficient monetary system. It will provide far greater conven-
ience and significant savings for consumers and small businesses across the country.
James A. Rost, President and CEO
PREPARED STATEMENT OF LINDA F. GOLODNER
President, National Consumers League
July 13, 1995
Mr. Chairman and Members of the Committee, my name is Linda Golodner. I am
president of the National Consumers League, a national nonprofit consumer organi-
zation founded in 1899 to represent consumers in the marketplace and workplace.
We appreciate the opportunity to testify today on the issue of a dollar coin.
There have been few issues on which consumers have more clearly expressed their
opinion than on the dollar coin. They do not want it. I would like to enter into the
record the summary of five polls conducted over the past year on this subject. Amer-
icans consistently oppose switching to a dollar coin by a three to one and four to
one margin. In a poll conducted on behalf of Representative John Kasich and the
House Budget Committee, 82 percent of those surveyed nationwide oppose the dollar
coin — even if it would help reduce the budget deficit.
To be perfectly sure that polls we had seen were current and reflecting American
public perception without bias, the National Consumers League on June 8, 1995,
commissioned Opinion Research Corporation to conduct a national random sample
survey of three questions on the dollar coin. The suj^ey asked:
88
1. Congress is considering legislation that would abolish the dollar bill and re-
place it with a dollar coin. Do you favor or oppose abolishing the dollar bill and re-
placing it with a one dollar coin?
2. lT"oponents of coin legislation want to eliminate the one dollar bill, replace it
with the one dollar coin and reissue the two dollar bill. If given the choice, do you
think you would prefer to use. . . . One two dollar bill. . . . Two one dollar coins?
3. if the one dollar bill is replaced with the one dollar coin, do you think prices
on such things as vending machines, laundromat washing and drying machines, and
parking meters would increase . . . decrease stay the same?
In summary, Opinion Research found the following:
• Respondents opposed legislation to replace the $1 bill with a $1 coin by a margin
of 72 to 19 percent.
• Nearly six of every ten respondents thought prices of vending machine products
were likely to increase if a $1 coin became mandatory.
• Sixty-four percent of the respondents, if given a choice, would prefer using one
$2 bill over two $1 coins. Only 21 percent would prefer to use coins.
To my knowledge, the National Consumers League was the first to pose this last
question in a national survey, and the results raise the obvious question: If people
will simply switch to $2 bills, what have we accomplished by eliminating the $1 bill?
The likelihood that people would prefer $2 bills over $1 coins also raises the possi-
bility that the Government could find itself with billions of unwanted dollar coins
on its hands, much as it already has with the Susan B. Anthony coin.
Coin proponents argue that public opinion is simply irrational and that forced to
use dollar coins, people would soon acquiesce to the change. But this ignores several
important facts.
First, the American Government is not like that in Canada or Britain. Those
countries can much more easily impose an unpopular decision than can the U.S.
Congress. The General Accounting Office has discussed this in detail in its 1993 re-
port on the dollar coin.
Second, as noted above, a majority of the respondents believe that prices would
likely increase if the dollar bill is replaced by a dollar coin. I would ask that I be
allowed to enter into the record a University of New Haven study conducted by Dr.
Darryl Jenkins. To summarize this study. Dr. Jenkins found that if the average
price of vending machine products rose by only / percent, this would mean approxi-
mately $230 million a year in higher prices to the public. He also found that price
increases would most severely impact low-income families, who often rely dispropor-
tionately on vending and laundromat machines.
I do not represent myself as an expert on the impact of the dollar coin on the
U.S. Treasury. However, it is my understanding that the Congressional Budget Of-
fice (CBO) estimates the dollar coin would save an average of $20 million a year
over the first 5 years, while the Mint estimates it would cost the Government about
$22 million over the first 5 years. Even if the CBO estimate is accurate, one can
see that every dollar saved by the Treasury would come at the expense of many
more dollars lost by the public. If vending machines prices would increase by only
1 percent, that would mean the average American would lose $10 for every $1 saved
by the Treasury.
The vending machine and soft, drink industries, which appear to be the prime
movers behind the dollar coin legislation ask us to believe that the dollar coin would
require no substantial retrofitting of their machines. They say for example that
vending machines would no longer have to have a $1 bill changer. That is correct.
But it is equally correct that they will have to add a two dollar bill changer — for
the very reason they now have one dollar bill changers: because they will sell more
products if their customers can use the lowest denominated bill in purchasing prod-
ucts.
They also state that many machines today already accept the Susan B. Anthony
coin and that the new dollar coin will be the same size and weight. They fail to add,
however, that it will be necessary not only to accept dollar coins, but to dispense
them as change. This will require another retrofit to the five million vending ma-
chines in the country.
Why would vending machine operators and soft, drink manufacturers favor legisla-
tion tnat would require them to make expensive changes to their machines? Pre-
sumably because they feel they can raise prices sufficiently to cover their invest-
ments and increase their profits.
Vending machine operators believe that people see coins as inherently less valu-
able than paper currency. As a result, some in the vending machine industry believe
they can raise prices to a dollar with impunity. For example, a vending machine
operator recently stated: "There's a psychological barrier against using Tour quar-
89
ters, even if there's a bill changer right next to the game." That is why the editor
of a video arcade magazine wrote recently: "The video game industry would like a
chance to boost play pricing across the board, so for the last several years their top
lobbying priority in Washington has been convincing Congress to get rid of dollar
bills and replace them with dollar coins." I would like to submit for the hearing
record the articles from which these quotes are taken.
When the public holds strong and well-documented feelings in opposition to a
piece of legislation, it seems to me that Congress must find an extraordinarily com-
pelling argument to override that public opinion. I would suggest that no such com-
pelling argument exists. Congress should not try to impose this unpxipular coin on
an unwilling public. Thank you.
PREPARED STATEMENT OF THE COIN COAUTION
"One Dollar Coin Act of 1995" (S.874)
July 13, 1995
Introduction
The Coin Coalition supports the One Dollar Coin Act of 1995 (S.874) as intro-
duced by Sens. Rod Grams and Carol Moseley-Braun. The Coalition represents a di-
verse group of transit authorities, trade associations, and other organizations.
A well-designed $1 coin would help reduce Government spending, eliminate the
need for costly mass transit fare-box conversions, and help hold down the cost of
vending machine products. It also would remove various hidden costs of the $1 bill
and numerous inconveniences from modem life.
With $1 coins, we could more easily make a long-distance call on a pay phone,
buy a Sunday paper from a street box, use a coin basket in a highway toll booth,
or use a long-term parking meter. Lines at subway fare machines would move more
quickly because coins are accepted more easily than bills.
"GAO recommends that the Congress authorize the introduction of a new, well-
designed 1-dollar coin and simultaneously provide for elimination of the dollar note."
General Accounting Office, March 1993.
Summary
Passage of The One Dollar Coin Act supports deficit reduction. The Government
saves at least $395 million annually, on average over 30 years. Coins remain in cir-
culation 30 years; cost 8^. Bills last 17 months; cost 4^.
Local governments would save money on transit expenses and would not have to
replace mechanically operated parking meters. Mass transit would save $124 mil-
lion annually. Bills cost up to 3g each to count and are easy to steal. Buses would
spend less time idling at curbs waiting for passengers to board.
The visually impaired would be able to make small purchases conveniently and
would be able to easily distinguish the $1 coin from other coins.
Most vending machines are already equipped to process the Anthony (or similar)
$1 coin without further capital outlay. Replacing the $1 bill with a coin will make
future purchases of costly bill acceptors (up to $400) unnecessary and customer pur-
chases from machines much more convenient and faster.
The public will have the option of carrying $2 bills, because cash retailers will
have room for them in cash drawers once $1 bills are eliminated.
Every other major foreign country has successfully introduced high-denomination
coins. The United States has coins with the least purchasing px)wer of any major
country.
A new $1 coin should (1) be golden in color, (2) have a distinctive edge and surface
features to aid the visually impaired, (3) have the same dimensions as the Anthony
dollar. Changing dimensions would require retrofitting transit fare boxes, vending
machines and other coin-of>erated equipment. The Canadian 'loon" $1 coin, which
has replaced Canada's $1 bill, is an excellent prototype.
I. Government Savings — Federal
The Congressional Budget Office, (jeneral Accounting Office, the Federal Reserve
and private studies agree that replacing the $1 bill with a $1 coin would save the
Government billions of dollars. Each has used different assumptions to calculate the
savings. Rules governing the CBO have limited its ability to calculate the entire
spectrum of governmental savings.
90
1995 Federal Reserve System:
$2.28 billion in first 5 years of implementation
The Fed estimate (presented at the May 3 hearing before a House Banking Sub-
committee) is almost 9 times greater than the CBOs for two reasons: (1) the Fed
assumes that two $1 coins wiu replace each $1 note that is returned and (2) the
Fed includes interest avoided on the National Debt resulting from the interest free
loan that coins provide to the Government.
1995 CONGRESSIONAL BUDGET OFFICE (CBO):
$260 MILLION SAVINGS, 1996 THROUGH 2002
The CBO only calculates the net Federal budget impact for the next 7 fiscal years.
Because the One Dollar Coin Act is phased in and has start up costs, the budgetary
savings are small initially. Savings m years 1 and 2 (FY96 and FY97) are zero be-
cause the Mint requires 30 months for planning and production of initial inven-
tories. In the third, fourth, and fifth years, savings are small because the efficiencies
of the coin are not yet realized.
Looking at only a 7-year frame is like making a decision on paper plates versus
china plates based on 5 days of use. Paper wins every time!
1993 General Accounting Office:
$395 million average annual savings over 30 years
The General Accounting Office (GAO), using a Federal Reserve model, includes in-
terest avoided on the National Debt resulting from the profit ("seigniorage") on sales
of coins to the public.
Interest saved on the National Debt is not included in the CBO estimate. How-
ever, the $380 billion worth of Federal Reserve notes and $20 billion worth of coins
in circulation fund about 8 percent of the National Debt interest free — much as un-
cashed travelers checks ana transit tokens kept as souvenirs provide an interest
free loan to American Express and transit authorities. In 1994, tne Federal Reserve
rebated $20.7 billion to the U.S. Treasury as interest on Federal Reserve notes. As-
suming a 5 percent interest rate, an additional $1 billion in interest was avoided
through seigniorage on coins.
1991 Prof. George McCandless, University of Chicago:
$862 MILLION average ANNUAL SAVINGS OVER 30 YEARS
Only McCandless has factored in savings resulting from $1 bills that are never
returned to the Federal Reserve. The GAO estimate assumes a 100 percent return
rate of the $1 bill. However, in Australia and Canada, between 44 percent and 48
percent of all $1 bills were never returned for redemption. Federal Reserve notes
that are not returned earn interest for the Government like uncashed travelers
checks. If only 25 percent of the 6 billion $1 bills now in circulation were never re-
turned, that $1.5 billion would continue to save the Government $75 million annu-
ally in perpetuity, assuming a modest 5 percent interest rate.
Conclusion: The McCandless study assumed (1) a lower level of usage of $2 bills
and (2) a smaller coin handling cost to the Federal Reserve, both of which tend to
overstate his savings estimate. The CBO study only considered production and han-
dling costs for the first 4V2 years following introduction of the coin so that an analy-
sis of the long-term impact is impossible. The Coin Coalition believes the actual sav-
ings will be in the $500 to $600 million range, on average, over 30 years — or
at least $15 billion total savings.
None of the estimates include the $124 million annual savings to mass transit
systems.
n. Mass Transit Would Save $124 Million Annually
Processing $1 coins instead of $1 bills would save the mass transit industry over
$124 million annually in equipment purchases, maintenance, and processing of $1
bills. The American Public Transit Association supports S. 874 as introduced by
Sens. Grams and Moseley-Braun. The transit systems of Chicago, Los Angeles, At-
lanta, San Antonio, New Orleans, Philadelphia, and Washington, DC are among
those strongly supporting the $1 coin and phase out of the $1 bill.
The New York City bus system has an easy solution to the paper-dollar problem:
It doesn't accept them. Potential passengers with no token or change cannot ride —
in spite of the phrase "legal tender for all debts'* printed on all U.S. bills. According
to the MTA New York City Transit, more than half of the express bus riders be-
tween Staten Island and New York City pay a $4.00 fare each way, quarters only.
Thus, 32 quarters are needed for the round trip.
Thomas Rubin, then treasurer of the Southern California Rapid Transit District,
testified before a House Banking Subcommittee on November 6, 1991.
91
Adding it all up, We believe that we can save approximately $3,500,000
per year if the dollar bill is replaced by a dollar coin. We can use these extra
funds to expand our service by about 1 percent, adding about 24 buses to
our schedule without one extra dollar of additional taxes or fare increases.
Given that the SCRTD operates the most overcrowded buses of any large
transit operator in the United States, these 24 buses will be most welcome —
they will carry about 4,200,000 extra passengers each year. That's a lot of
extra transit services that are vitally needed for not one extra cent from ei-
ther the taxpayer or our transit riders.
William C. Buetow, Vice FVesident Finance/Treasurer of the Chicago Transit Au-
thority, writing in the May 27,1992 issue of "Passenger Transport":
Bills are counted at a cost of $22 per thousand. Coins can be counted for
$1.64 per thousand coins. To reduce cash handling cost, a "deep discount"
was instituted in April 1990. The cash fare was raised from 95 cents to
$1.25, but token packs were sold in units of 10 for $9.
The quantity of $1 bills received daily now averages 285,000 [down from
485,000 before the change]. Although no demographic studies have been per-
formed on who uses tokens and /or cash for payment of fares, it is possible
that low-income passengers do not have the financial resources to spend $9
for tokens on any given day.
The Chicago Transit Authority now processes about 400,000 $1 bills daily. They
would save $2.4 million annually with a $1 coin. Using an industry standard, an
additional $11 million in theft, reduction could be realized.
in. Visually Impaired Support the $1 Coin
The visually impaired support the introduction of a $1 coin proposed by Sens.
Grams and Moseley-Braun, which begins to address their concern about the ability
to distinguish between various paper currency denominations. A circulating $1 coin
would reduce the chance of accidentally spending a large bill or of being cheated
when receiving change.
To address the concerns of the visually impaired, S. 874 says "The dollar coin shall
be golden in color, have a distinctive edge, have tactile and visual features that
make the denomination of the coin readily discernible. . . ."
IV. A $1 Coin Will Not Be Inflationary
Federal Reserve System, March 26, 1993. "It is our understanding that vending
machines produced in recent years are already able to accept a $1 coin and dispense
change, so we would not expect any significant cost pressures on suppliers of vended
products. Even if a new $1 coin were to have size and weight characteristics dif-
ferent from those of the Susan B. Anthony coin, and therefore require adjustments
to some machines, those would be one-time costs and probably not so great as to
justify appreciable increases in the prices of vended products. In summary, we do
not believe that there would be any discernible microeconomic or macroeconomic ef-
fects stemming from the issuance of a new $1 coin and the more or less simulta-
neous withdrawal from circulation of the $1 note."
Research Triangle Institute, September, 1976, p. 7-44. "The illusion that the intro-
duction of this coin will imply a corresponding price increase in products sold
through automatic merchandising is not based on sound economic reasoning. The
one dollar coin will serve to expand the market for vended products and will make
some purchases more convenient. . . . the existence of the additional coin alone
would not cause a price increase in the market."
Ford Motor Co. v. NLRB, U.S. Supreme Court. J. White. May 14, 1979. "Holding:
In-plant cafeteria and vending macnine food and beverage prices and services are
terms and conditions of employment' subject to mandatory collective bargaining
under Sees. 8(a) and 8(d) of tne NLRA ... to require employer to bargain ever in-
plant food-service prices is not futile. Although prices are set by a third-party ca-
terer (vending company), employer retains right to review and control such prices."
General Accounting Offtce, GAOIGGD-93-56 1 Dollar Coin, page 22. The Cana-
dian Automatic Mercnandising.Association reported that the coin has resulted in 15-
to 35-percent increases in vending sales without price increases.
Further information on vending prices.
(a) Equipment Cost Savings — The introduction of a widely circulating dollar
coin will substantially reduce the need for costly bill acceptors (up to $400) on mil-
lions of vending machines to be purchased in the future. Additionally, most vending
machines, transit fare boxes, and coin-operated machines manufactured since the
mid-1980's have the capability of accepting Anthony dollars.
92
(b) Competition — ^The merchandise vending industry is a highly competitive in-
dustry, with an estimated 6,000 companies competing vigorously in the food and re-
freshment vending market. Companies that raise prices, for any reason, frequently
find competitors offering their customers lower prices. Furthermore, the vending in-
dustry competes in the sale of food and refreshment with fast food outlets, conven-
ience stores and other non-vending sources. These competitive forces would prevent
opportunistic price increases associated with the use of dollar coins.
Greater consumer convenience will lead to increased vending sales.
V. Today's Dollar is the Quarter of the 1960's
12S5 1225
Daily newspapers (most)
$0.10
$0.50
Soft drink, 12 oz.. vended
.10
.65
Pay phone, local call
.10
.25
First Class postage stamp
.05
.32
New York City subway fare
.15
1.25
Bread, 1 pound
.21
.78
Miik, 1/2 gallon
.47
1.43
Ground beef, 1 pound
.49
1.39
Gasoline, all types, 1 gallon
M
1,51
9 item average
$0.22
$0.9C
Ail Item Consumer Price Index 31.3 151 .4
Base years 1982-84 = 100
Conclusion: In 1965, the average "small item" could be purchased with a single
coin, in 1995, three or more quarters are needed for most purchases.
Sources:
American Newspaper Publishers Association
American Petroleum Institute
Vending Times
U.S. Bureau of Labor Statistics
Prepared by: The Coin Coalition, April, 1995
VI. Seigniorage & Portfolio Earnings
The savings to the Government from a $1 coin come mainly from the fact that
the Government makes a significant profit on every coin that is put into circulation.
"Seigniorage," the technical name for this profit, has been criticized as "smoke and
mirrors" accounting. In fact, it represents proper, conservative, and very logical ac-
counting conventions.
U.S. coins today are essentially tokens that have little intrinsic value. However,
when coins are put into circulation, the public pays the Government the face value.
Seigniorage is tne difference between the face value of a coin and its cost. In the
case of a $1 coin, which costs 8 cents to make and distribute, the profit or seignior-
age is 92 cent&
93
This profit is not considered revenue, because in theory, at some point, the coin
might be redeemed (although redemptions are a minor factor), and the Government
would then have to refund its face value.
The receipts from coinage amount to an interest free loan from the public to the
Government. Issuing 10 bulion new $1 coins would produce $9.2 billion in receipts,
which would flow into the Treasury's general fund. Treasury would spend the money
in lieu of borrowing. This would save Treasury the interest it would otherwise pay
to borrow that amount and hold down the national debt. The savings are large,
since interest on Treasury 30-year bonds is over 7 percent today.
The coin assumes value at the point when the coin is swapped for its face value
with the public, because the Government stands behind it and will refund its face
value on demand. After the transaction with the public occurs, the Government has
the face value of the coin in its possession and can use the money to finance the
deficit. These interest savings, in addition to savings from printing, paper, and proc-
essing, should be counted when computing the savings to the Government from issu-
ing a new $1 coin.
Paper Notes. Receipts from paper money also are used to finance the deficit, but
the procedure is somewhat different. When Federal Reserve notes are placed into
circulation, the Federal Reserve receives their face value from the public. The re-
ceipts are invested in Treasury securities, which earn interest. Each year the inter-
est earned on those Treasury securities (called "portfolio earnings") is rebated to the
Treasury, thus financing that portion of the deficit. In 1994, the Fed rebated the
$20.7 billion it earned on about $360 billion worth of Federal Reserve notes out-
standing. Most economists use "seigniorage" when talking about paper money, too.
Replacing a Federal Reserve note with coin is a wash, irom an accounting stand-
point. The (jovemment saves money from The One Dollar Coin Act because three
$1 coins will be needed for each $1 bill removed from circulation (based on the Cana-
dian experience). $1 coins tend to "pool" in vending machines, pay phones, etc. more
than $1 bills, so more coins are needed. This "increase" would not be inflationary,
because the money supply (Ml) would not change; each $1 coin would have to be
purchased with existing money. A greater percentage of Ml would be held as $1
coins, from which the Government would profit, just like American Express would
by having more uncashed travelers checks in circulation.
The Private Sector. Similar transactions are common in the private sector.
When an individual buys a travelers check, gifl certificate, or subway token, the is-
suer has the use of the buyer's money until the check, certificate, or token is re-
deemed. The money may be invested to earn interest or be used for current cash
flow needs — just as the Government does.
Vn. Why the $1 Note Must Be Phased Out
The Coin Coalition strongly agrees with the U.S. Mint and the GAO that the $1
Federal Reserve note must be replaced if a new $1 coin is introduced. The reasons
are numerous.
Reason #i; Cash retailers. Most cash registers have ten position drawers, five for
paper and five for coins. The five paper positions are oflen used for $1, $5, $10, $20
notes, with the fifth position used for checks, charge slips, food stamps, etc. The coin
slots are used for 1, 5, 10, 25-cent coins, with the fifth position oflen used for spare
rolls of coins.
Under the proposed changes, a cashier must find places for both the $1 coin and
the $2 note. The current space for the $1 note is the logical place for the $2 note.
The $1 coin would go in the fiflh position used for coins. Checks, or $20 notes would
have to go under the drawer to make room for spare rolls of coins, or another loca-
tion must be found for spare rolls of coins.
Continued use of the $1 note would create a space problem in the cash drawer.
Having to handle both a $1 coin and $1 bill would be the worst case scenario. For
that reason, the Coin Coalition supports a $1 coin only if the $1 note is removed
from circulation.
Reason #2; Flow of currency. Cash retailers must pay out $1 coins in change in
order for the public to have them for purchases that would be facilitated with coins.
Large bills ($20's and $10's), which enter circulation at Automatic Teller Machines
(ATM s) and at bank teller windows, are carried by individuals to cash retail estab-
lishments: grocery, convenience, drug stores, quick service restaurants, movie thea-
ters, etc.
Cash retailers accept these bills, and give $1 bills and coins in return. The indi-
vidual now has the $1 bills and coins necessary to use in vending machines, parking
meters, pay phones, and mass transit fare-boxes. These industries "vacuum' up the
coins and $1 bills. The coins and $1 bills are counted and sorted, then returned to
banks where they are recycled to cash retailers.
94
For example, the Mass Transit Administration of Maryland (MTAM) uses An-
thony $1 coins like a token in the Baltimore subway system. But it must go to the
bank, stock the coins, and process the $1 notes it receives for Anthony dollars. The
Baltimore system would save over $300,000 annually if the public entered the sys-
tem with $1 coins in hand.
Vm. Phase-In Period of $1 Coins
The GAO study assumes a 5-year phase-in period for the dollar coin and the re-
moval of the $1 note. The Coin Coalition believes this is too long. After studying
various international scenarios, it appears that the optimum time f)eriod for phase-
in is between 12 and 18 months.
The Federal Reserve System should begin withdrawing $1 notes as soon as pos-
sible following the coin's introduction. The total phase-in should last no longer tnan
1 year.
Example: The Canadian $1 "loon" coin was introduced in July 1, 1987, and the
last $1 note was issued on July 1, 1989. The phase-in was virtually complete by the
end of 1989. During the phase-in, there was a perception by the media that the coin
was failing because it did not circulate in large numbers initially. This problem
would not have happened with an earlier phase-out of the Canadian paper dollar.
IX. Industry Preparedness
Most vending machines, transit fare boxes, and coin-operated machines manufac-
tured since the mid-1980's have the capability of accepting Anthony dollars. This
was done at the urging of the U.S. Treasury Department to support the Susan B.
Anthony. Changing the diameter or thickness of a new coin would cause more than
80 percent of the Nation's 4.5 million vending machines to have to be refitted with
new coin mechanisms.
Many bill acceptors currently used on vending machines are designed to take $1,
$2, $5, $10, and $20 bills. A device can be set to determine which bills will be ac-
cepted. Thus, most of the industry is ready to handle a new Anthony-sized coin and
higher-denomination bills.
There are several reasons why S.874 does not amend existing law regarding the
size of the proposed $1 coin. (A change to a coin such as the British 1-pound coin
would be a disaster.)
(1) The existing infrastructure is ready to handle an Anthony-sized coin. Vending
machines, transit equipment, and coin-separating machines placed into service after
1980 are ready to handle a new coin now.
(2) Nickels, dimes, and quarters are narrower than the British pound. Wider coin
slots and shoots needed inside the coin mechanisms to acconmiodate a wide coin
would cause these nickels and dimes to wobble or jam. The British pound coin is
more than twice as thick as the U.S. dime.
(3) British pound coins cannot be easily machine wrapped into rolls. The alter-
native (small bags of coins) are easier to steal from cardboard containers, and bags
of coins must be counted by hand. A thick coin would render virtually all coin sepa-
rating/counting machines obsolete, because an additional step would have to be
added to the hardware to "strip" dimes that are stacked on top of each other.
X. Public Opinion
Virtually all public opinion polls have been conducted by the zinc industry (which
opposes elimination of the penny) and by Save the Greenback. In no survey, has
the public been informed that a circulating $1 coin would save the Government bil-
lions of dollars over time. Nor have they been informed that the $2 bill would be
provided as a paper alternative. Public opinion polls consistently show that people
want to balance the budget, cut Government waste, and retain public assistance
programs that are efficiently run. If questions about the acceptance of a $1 coin
were put in the context of these other programs, the Coin Coalition believes the re-
sults would be different. The GAO survey of the Canadian experience seems to bare
this out.
XI. Efl'ects on Production Levels at the Bureau of Engraving & Printing
The Coin Coalition believes the impact of a $1 coin on these entities will be nil
because the productive capacity should be used to make $2 bills and to quickly in-
troduce the next generation of Federal Reserve notes to discourage the continued
counterfeiting of high-denomination bills in the Middle East and Columbia. The nat-
ural growth in the use of Federal Reserve notes in the U.S. and in developing coun-
tries will make up for any drop in production of the $1 bill over the long term.
Failure to keep the U.S. legal tender system convenient for the U.S. marketplace
and safe from counterfeiting will hasten the decline of profits for Crane and SICPA
95
and the loss of jobs for the FVinters Union. The evidence of this decline already has
begun. See the following articles:
"Overseas Counterfeiters . . ." — Washington Post, April 18, 1994
"Saving $100 Bills? Maybe you shouldn't" — National Journal, July 2, 1994
"High-Tech Counterfeiting" — US News & World Report (cover story), December 5,
1994
"Conspiracy Against the Dollar" — Reader's Digest, March 1995
"What if the Dollar Doesn't Stay on Top?" — Wall Street Journal (page one), March
20, 1995
"The Future of Money"— Business Week, June 12, 1995
Xn. Fighting Counterfeiting with New Currency
The Treasury Department announced on July 13, 1994 "a comprehensive program
to modernize the design of U.S. currency." Production design will be finalized in
1995 and $100 bills will be issued "about a year later." Treasury claims the plan
is "not a response to a crisis" or to any current counterfeiting case. (Experts dis-
agree on this point.) All notes through the $1 Federal Reserve Note (FRN) would
be replaced by the year 2000.
Eliminating the $1 Federal Reserve Notes (FRN) would free capacity at the Bu-
reau of Engraving & Printing to sf)eed introduction of new notes. Currently, 49 per-
cent of BEP capacity is used printing $1 FRN's.
In Circulation
FRNs printed (in billions)
at 12/31/94
•89
'90
'91
•92
'93
•94
•94%
6-year*
$1 FRNs 6.1
2.861
3.149
3.213
4.090
3.514
4.563
49%
45%
$5FRNs 1.5
.835
.912
.979
.787
1.126
1.005
11%
12%
$10 FRNs 1.6
.771
.771
.813
1.037
.641
.794
9%
10%
$20 FRNs 4.0
1.526
1.802
1.926
1.760
2.170
2.253
24%
24%
$50 FRNs 0.9
.134
.128
.128
.557
.259
.115
1%
3%
$100 FRNs 2.3
,201
.240
.957
,219
323
,605
6%
5%
6.328 7.002 8.016 8.449 8.033 9.334
Printing of $100 FRN's now constitutes about 5 percent of annual BEP produc-
tion, on average. Replacing 80 percent of all $100 FRN's in circulation within 8
months would require using 30 percent of BEP's capacity during that time frame.
(80 percent x 2.3 billion x 1.5 / 9.3 billion)
Alternatives. (1) Sen. Patrick Leahy introduced on January 31, 1995, S. 307, the
Counterfeiting and Money Laundering Deterrence Act of 1995, which would demon-
etize $100 FRN's after 6 months and would call for domestic and non-domestic ver-
sions of the note. Others in Congress are talking about recall and demonetization,
also. Treasury opposes these ideas with good reason. (2) A rapid replacement of all
notes (one denomination at a time) could create the impression that old notes are
not as secure. Under this scenario, the marketplace would, de facto, render old notes
nonlegal tender. The One Dollar Coin Act makes this scenario possible.
Treasury is concerned about making too many changes at once and is focusing
on currency redesign at this time. Treasury may be making some assumptions based
on the experience of introducing the Series 1990 notes with micro-engraving and se-
curity thread. These changes were not obvious to the public, and the 1990 notes eas-
ily co-circulated with the old. Treasury must be convinced that a rapid deployment
serves many positive purposes and that a strong demand for new FRN's without the
capacity to meet that demand could create the panic they are trying to avoid.
Budget Savings. While replacing most $100 FRN's quickly would cost more
money, those costs could be offset by drug dealers and other criminals not being
able to launder all old notes in their possession.
Xm. Foreign Experience
Every other major industrial country already has switched to high-denomination
coins. The paper currency of the same value was removed or phased out in every
case.
96
Coyntrv
Circu'stinq Coins
U.S. <J<?ii9r MuiY9i«nt
Japan
500/1 OO-yen
$5.76/$1.15
Switzerland
5/2 Swiss francs
$4.32/$1.73
Spain
500/200-peseta
$4.13/$1.65
France
20/10/5-franc
$4.12/2.06/$1.03
Denmark
20/10-krone
$3.69/$1.84
Germany
5/2 Deutsche Mark
$3.59/$1.44
Singapore
5-/1 -dollar
$3.57/$0.71
Israel
10-Shekel
$3.38
Mexico
20/1 0/5-new pesos
$3.24/1 .62/$0.81
Nonway
20/10/5-krone
$3.23/$1.62/$0.81
Netherlands
5/2.5-guilder
$3.21/$1.60
Belgium
50-franc/20-franc
$1.74/$0.70
Ireland
1 -pound (Punt)
$1.63
United Kingdom
1 -pound
$1.60
Australia
2-dollar/1 -dollar
$1.43/$0.72
Sweden
10/5-krona
$1.38/50.69
New Zealand
2-dollar/1 -dollar
$1.36/$0.68
Finland
5-markka
$1.17
Austria
10-schilling
$1.02
Canada
1 -dollar
$0.74
Italy
500-lira
$0.31
United States
quarter dollar
$0.25
(exchange rates at 7/7/95)
The Canadian $2 Coin. In 1996 the Canadian government will replace their $2
note with a $2 coin. This will create a six-coin set: penny, nickel, dime, quarter, $1
coin, $2 coin. This will be awkward for cash retailers. The Coin Coalition would not
support a currency system that employs six different circulating coins.
XIV. Summary Environmental Analysis: 10-YEAR TOTALS*
Replacing $1 bill with $1 coin; possible elimination of penny
From
$1 coin: first five years @ 1.5 billion
second five @ .5 billion
Quarter reduction, years 3-10
Materials from $1 bills, years 2-10
5.5 billion/year @ 490/pound 75% c
Materials for $2 bills, years 2-10 1.6
Pennies elimination, 10 years
@ 1 2 billion/year
Aggregate Changes ■*-22.8
Thousands of tons (2,000 lbs), post manufacturing weight
Copper
Nickel
ZiQ£ Cotton
Linen InK
+56.9
+10.0
+19.0
+3.3
-44.8
-3.8
»tton, 25% linen
-37.8
-12.6 -21.8
} billion/year
+11.3
+3.8 +6.5
-8.3
-322.4
+10.8 -322.4 -26.5 -8.8
•15.3
Cotton: Cotton is a pesticide intensive crop. According the Bureau of Engraving
& Printing "the cotton fiber . . . comes from post-industrial sources such as textile
factories. No post-consumer cotton fibers are used in the paper finish."
Note: While the claim of post-industrial use of cotton is true, the opposition
to 8.874 by some in the cotton industry suggests that use of this cotton ex-
pands markets for virgin cotton. No substantiation has been provided for
the claim that most of the cotton fiber is diverted directly from the solid-
waste stream.
*The analysis assumes no growth due to economic expansion or inflation. The purpose of this
analysis is to identify variables and demonstrate the magnitude of materials usage resulting
from changes in U.S. coins and notes. Assumptions are based on Government and Coin Coalition
estimates.
97
Copper/Zinc/Nickel: Complete coinage reform would result in a 90 percent re-
duction in the use of metal. Only nickel is not domestically mined. The 50 percent
reduction in quarter demand is based on the experiences of Norway, Netherlands,
Great Britain, Canada, Japan, and Australia.
Ink: The inks used for paper money are petroleum-based and have metal content
to give the ink magnetic properties for counterfeiting deterrence.
Other Materials/Considerations
Disposable payment (plastic/paper) cards for telephones, parking meters, transit
systems. Increased production of private sector tokens for mass transit, game ma-
chines. Batteries needed to operate parking meters, newspaper racks. Replacement
of fare boxes, parking meters, telephones to accept other payment systems. In-
creased fuel use resulting from increased "dwell times" by buses waiting at the curb.
Increased cost of mass transit fares, resulting in fewer passengers.
Life Cycle Comparison
One $1 coin weighing 8.1 grams does job of 21 $1 bills weighing 30 grams, count-
ing fresh ink.
Recycling. All worn and mutilated coins returned to the Mint are recycled into
new coins. Even though some paper notes are recycled into roofing shingles and sta-
tionery, 89.9 percent of notes returned to the Federal Reserve were Tandfilled in
1994.
XV. Weight in the Pocket
The average American carries three $1 bills. Three $1 coins will weight less than
one ounce. A more technical analysis shows that complete coinage reform would ac-
tually reduce the average number of coins and notes needed per transaction. Note
that the weight reduction does not take into account the decreased use of quarters
in coin laundries, parking meters, vending machines, mass transit, pay phones, etc.
Two variables determine how much weight you carry in coins ana paper: (1) The
weight of the individual piece of currency; (2) The average number of coins and
notes you receive in each transaction.
Below is a comparison of the current system and an alternative system.*
Current System
Average Number per transaction
Penny 2.0 coins
Nickel .4
Dime .8
Quarter 1.5
$1 bill 2.0 bills
Weight
5.0 grams
2.0 grams
1.8 grams
8.5 grams
2.0 grams
(@ 2.5 g/coin)
(@ 5.0 g/coin)
(@ 2.27 g/coin)
(@ 5.67 g/coin)
(@1.0g/bill)
6.7 coins/bills
19.3 grams
AUgmats ?y?tgm
(drop: penny, $1 bill; add: $1 coin, $2 bill)
Average Number per transaction
Penny
Nickel
Dime
Quarter
$1 coin
$2 bill
none
.4
.8
1.5*
.4
.8 bills
Weight
2.0 grams
1.8 grams
8.5 grams
3.2 grams ^i^ °- ' yi-ui'i
.8 grams (@1.0g/bill)
5.0 g/coin)
2.27 g/coin)
5.67 g/coin)
8.1 g/coin)
3.9 coins/bills 16.3 grams
*If the public shunned the $1 coin and used only quarters and $2 bills (a scenario suggested
by the Director of the U.S. Mint), the number of quarters need per transaction would jump to
an average of 3.5 — more than double the weight of the proposed $1 coin in S. 874.
98
The number of coins needed is based on a simple computation of the total number
of coins required to complete 99 transactions priced from 1^ through 99^, then di-
viding by 100.
XVI. Lessons Learned From the Anthony Dollar
The last time a $1 coin was introduced in the United States — the Susan B. An-
thony in 1979 — it did not circulate. The GAO studied the experience of the Anthony
dollar, and concluded that "One of the major causes was the failure to eliminate the
$1 note." Cash retailers were reluctant to count and store both paper and coin dol-
lars.
Additionally, the coin was confused with the quarter, because of its similar silver
color and feel, including an identical reeded edge. The Coin Coalition advocates a
golden-colored coin that has a distinctive edge (like a nickel), as opposed to a reeded
edge like the quarter. These two changes are sufUcient to insure easy differentiation
from quarters. The Coalition opposes changing the physical dimensions of a new $1
coin, as this would require the vending/coin-operated industries, as well as the mass
transit authorities, to retrofit all the machines that have been designed to handle
the Anthony dollar. Any change in the dimensions would cost these industries hun-
dreds of millions of dollars.
With the golden color and smooth edge, the quarter and $1 coin should be easier
to tell apart than pennies/dimes or quarters/nickels.
(30% larger than dime)
(12% larger than nickel)
(40% larger than quarter)
Canada successfully introduced in 1987 the golden-colored 'loon" $1 coin, which
is the same diameter as the Anthony $1 coin.
Even though the Anthony dollar currently does not circulate among the U.S. pub-
lic at large, it is an important coin in many localized operations. Following are some
of the mass transit systems and vendors currently using the Anthony dollar:
Chicago Transit Authority, Chicago, IL
Dallas Area Rapid Transit, Dallas, TX
Metro-Dade County Transit Agency, Miami, FL
Mass Transit Administration of Maryland, Baltimore, MD
MTA Long Island Railroad, Jamaica, NY
MTA Metro North Railroad, New York, NY
New Jersey Transit, Newark, NJ
Port Authority Trans Hudson (PATH), Port Authority of NY and NJ
Port Authority Transit Corporation, Lindenwold, NJ
St. Louis Metro-Link, St. Louis, MO
San Francisco Municipal Railway System, San Francisco, CA
Southeastern Pennsylvania Transit Authority, Philadelphia, PA
U.S. Postal Service, stamp vending
Over 75 vending companies, (names available from National Automatic Merchandis-
ing Assn.)
Anthony Resurgence. Inventory of Anthony dollars at the US Mint and the Federal Reserve:
12/31/93 363.5 million
6/30/94 338.7 million 24.8 million drop in six months
12/31/94 310.1 million 28.5 million drop in six months
6/30/95 273.0 million 37.0 million drop in six months
At the current rate of depletion, the Mint will be forced to start minting Anthony dollars in
less than four years, unless Congress approves S. 874.
Weight
Diameter
Thickness
Penny
2.50 grams
19.05 mm
1.57 mm
Dime
2.27 grams
17.91 mm
1.35 mm
Nickel
5.00 grams
21.21 mm
1.98 mm
Quarter
5.67 grams
24.26 mm
1.70 mm
Anthony dollar
8.10 grams
26.50 mm
2.00 mm
99
XVn. Editorial Support
These newspapers and columnists support the $1 coin and, in most cases, ex-
pressly endorse the phasing out of $1 bills.
Anderson (SC) Independent
Annapolis Capital
Ashland (OR) Tidings
Baltimore Sun
Bangor (ME) News
Bartlesville (OK) Examiner
Bay City (Ml) Times
Boston Globe
Bridgewater (NJ) Courier-News
Camden (SC) Chronicle
Canadaigua (NY) Daily Messenger
Canton (OH) Repository
Centralia (WA) Chronicle
Cheyenne (WY) State Tribune
Chicago Tribune
Chicago Sun Times
Cincinnati Enquirer
Columbus (OH) Dispatch
Dallas Morning News
Davenport, lA Quad City Times
(Denver) Rocky Mountain News
Des Moines Register
Detroit News
Duluth News-Tribune
Elkhart (IN) Tmth
Fort Wayne Journal-Gazette
Fresno Bee
Grand Junction Daily Sentinel
Harrisonburg (VA) Daily News
Hickory (NC) Daily Record
Huntington (WV) Herald
Jacksonville (FL) Times-Union
Joliet (IL) Herald-News
Joplin (MO) Globe
Kalamazoo Gazette
Kent (WA) Valley Daily News
Kingsport (TN) Times-News
Lewiston (ME) Sun-Joumal
Lincoln (NE) Star
Los Angeles Daily News
Los Angeles Times
Louisville Counier-Joumal
Lynn (MA) Daily Evening Item
Mamaroneck (NY) Times
Minneapolis Star Tribune
Mt. Clemens (Ml) Macomb Daily
New York Times
Nonwalk (CT) Fairpress
3/20/93
6/24/90
6/29/91
7/4/91
11/18/91,3/22/93
10/17/89
3/25/93
1/10/89 and 12/28/93
6/19/90
3/12/93
10/20/94
6/25/90
7/22/94
3/12/93
2/20/88, 11/12/91, 5/10/95
12/26/90, 5/8/95
9/24/94
5/29/90, 11/9/91. 3/5/92, 3/21/93. 5/21/94
6/20/90 and 7/27/91
5/4/95
5/4/95
7/13/88, 7/1/89. 9/28/89, 3/3/92, 7/18/94
5/4/95
5/1/95
3/28/95
9/22/87 and 8/4/89
7/7/89
11/5/91
3/30/93
10/1/87
10/21/90 and 11/9/91
12/26/93, 3/2/95
7/21/94
6/21/90,8/10/91,4/16/93
5/3/95
8/7/94
4/11/90
10/17/89, 6/25/90, 11/6/91, 5/8/93
7/3/90 and 11/14/93
4/16/88 and 11/17/91
3/24/93
7/28/91
4/30/88
6/25/90
9/29/89, 7/18/94
3/19/93
3/9/89, 9/24/89, 6/3/90, 7/15/94
6/28/90
100
Ottawa (IL) Daily Times
Owosso (Ml) Argus Press
Owensboro (KY) Messenger
Palm Springs (CA) Desert Sun
Pensacola News Journal
(Phoenix) Arizona Republic
Philadelphia Inquirer
Pittsburgh Post-Gazette
Portland (ME) Evening Express
Portland (ME) Press Herald
Portland Oregonian
Roanoke Times & Worid
Rochester (NY) Times-Union
Royal Oak (M!) Daily Tribune
Sacramento Bee
St. Cloud (MN)
St. Louis Post-Dispatch
Salt Lake City, Deseret News
Salt Lake City Tribune
San Francisco Chronicle
San Gabriel Valley Tribune
Scranton Tribune
Scripps Howard Newspapers
Sharon (PA) Herald
Springfield (MA) Union News
Sunbury (PA) Daily Item
Tacoma (WA) News Tribune
Texarkana Gazette
Temple (TX) Daily Telegram
Toledo Blade
Trenton Times
Tucson Citizen
Tyler (TX) Moming Telegraph
USA Today
Wakefield (MA) Item
Wichita Eagle
Wilkes-Barre Citizens' Voice
Wilmington News Journal
Winston-Salem Journal
7/26/94
3/14/93
6/27/90
6/8/92
5/18/90
3/10/95
4/24/95
7/11/90
5/29/90
6/22/90 and 9/4/91
7/4/91, 3/16/93. 9/13/94. 5/3/95
12/14/87
9/28/94 and 4/21/95
3/17/93
7/9/89. 6/5/95
3/8/95
7/20/89
10/5/87. 11/22/88, 6/26/90. 8/4/92. 4/20/93
11/8/91 and 7/20/94
2/25/89 and 5/26/90
4/21/91
8/ 8/94
4/11/88
4/29/95
3/16/93
3/28/93
8/6/94
6/27/90
10/9/89
11/16/91 and 5/11/95
11/6/91 and 3/14/94
4/14/95
3/29/92
5/4/95
10/11/89
3/12/93
4/2/91
6/22/90 and 2/13/95
5/2/95
Columnists
William F. Buckley. Jr.
Stephen Chapman, Chicago Tribune
James J. Kilpatrick
Michael Kinsley
Gus Carison. Miami Herald
Thomas Gephardt, Cincinnati Enquirer
Larry Hicks, York Dispatch
Bob Moos, Dallas Moming News
Berry Rascovar, Baltimore Sun
Richard Roeper, Chicago Sun Times
Harry Themal, Wilmington News Journal
1 1/28/89
11/7/91.5/11/95
1/23/88
7/12/90
6/25/90
3/11/90
3/31/93
10/20/89
6/25/89
6/25/91
9/18/90 and 1/30/95
Complete copies of articles are available from The Coin Coalition.
101
PREPARED STATEMENT OF DAVID RYDER
President, Ryder Company &
Former Director, United States Mint
Washington, DC
July 13, 1995
Mr. Chairman and Members of the Committee, I appreciate the opportunity to
come before you today to discuss proposals to eliminate the one dollar bill and re-
place the bill with a one dollar coin, as embodied in S. 874.
As you know, Mr. Chairman, I had numerous discussions about the dollar coin
with Members of this Conunittee and others during my tenure as President Bush's
Mint Director. During those years, as well as now, I have never waivered in my be-
lief that the dollar coin is a bad idea for many reasons. It is worth noting that five
Treasury Secretaries in the last three Administrations have also said the dollar coin
is a bad idea. In late May, the current Treasury Department announced its opposi-
tion, noting that the proposal is "a violation of Americans' choices and fraught with
illusory savings and underestimated risks."
I believe that the first and most important reason that a dollar coin is a bad idea
is that the American people, by huge numbers, do not want it, and if they don't
want it, they won't use it. Thus, in our demand-based currency system, non-use
means failure and you can be assured that a failure this time around will have
enormous costs far in excess of the costs of the Susan B. Anthony failure.
A couple of years ago, in testimony before the House Treasury Appropriations
Subcommittee, I was asked why tiie Susan B. Anthony failed; my answer was sim-
ple— "There is not a market for it." That fact has been validated by several polls
over the years, including House Budget Chairman John Kasich's 1995 Budget Defi-
cit Tour Poll which found 82 percent of Americans opposed to replacing dollar bills
with dollar coins. A recent Opinion Research poll found 72 percent of Americans op-
posed to a dollar coin, and that if given a choice between using a two dollar bill
or two one dollar coins, 64 percent of Americans would use the two dollar bill. A
1994 Yankelovich Poll found 75 percent of Americans opposed to a dollar coin; a
1994 Market Facts Poll found 73 percent opposed to a dollar coin; in June, 1995,
a CNN-Gallup Poll found 77 percent opposed to a dollar coin; the list goes on. These
findings indicate, clearly, why a dollar collar coin will likely fail.
Despite the findings of these polls, the same proponents of the failed Susie B. dol-
lar coin continue to lobby for eliminating the one dollar bill and replacing it with
a dollar coin; their campaign is now in its 10th year. I believe it is worthwhile to
ask "Why?" And I don't beueve that the answer nas anything to do with any real
or imagined Federal budget savings.
Mr. Chairman, the dollar coin budget savings argument has been found to be defi-
cient, with estimates of savings all over the spectrum, and highly exaggerated as
former FED Governor Andrew Brimmer has noted, and as a July 1994 Price-
Waterhouse study notes. Incidentally, the Price-Waterhouse Study, which was done
under Federal budget scorekeeping rules, notes that the various other studies often
cited by the Coin Coalition do not adhere to such rules. Finally, the Conference
Agreement on House Concurrent Resolution 67, the 1996 Budget Resolution, notes
"the conference agreement does not assume additional revenues from replacing the
one dollar bill with a one dollar coin." In other words, it assumes no savings.
Mr. Chairman, you will hear this morning that certain elements of the transit in-
dustry support a dollar coin because it will save money relative to the costs of count-
ing and processing dollar bills. First of all, the public transit industry is a relatively
small sector of the U.S. economy so such savings are minimal relative to the huge
cost disruptions of this proposal. Apart from that fact, I would encourage the transit
industry to be more visionary in its thinking and recognize that we are moving to-
ward a cashless society where coins will be a thing of the past, particularly when
it comes to public services such as toll roads and transit systems.
You will hear this morning from the vending industry which knows that a dollar
coin will be good for its business, particularly for the big vending machine manufac-
turers since they'll manufacture new, upgraded machines. The big vending retailers
will be able to easily raise prices for vending products by rounding up to a dollar.
However, these big vending interests will not tell you about small vending compa-
nies such as Eastern Vending Corporation in Linden, NJ, or American Vending in
Mount Freedom, NJ. The reason is that these little vending companies and otiiers
could well be forced out of bu^ness because of the costs of mad^ne modifications
4f the dollar coin bill passes.
102
You have heard that vending machines already accept a dollar coin the size of
the Susan B. Anthony dollar coin. What you have not oeen told is that these ma-
chines cannot return that dollar coin in change. This means that if the dollar bill
is replaced by a dollar coin, and the two dollar bill becomes the lowest paper de-
nomination, the vending companies will have to re-tool machines to not only accept
dollar coins, but disperse dollar coins as change. Additionally, the Dollar Bill Accep-
tor now on the macnines of many small vendors will be eliminated or modified to
a $2 bill acceptor. The modifications will cost too much for many small companies
to stay in business.
In short, Mr. Chairman, the overhaul costs in the vending industry will run well
into the hundreds of millions, if not into the billions. This information comes from
CONLUX USA in St. Louis, the Nation's second largest manufacturer of vending
machine bill and coin acceptors.
Given the cost of retrofit or replacement efforts to conform to a dollar coin, you
have to ask why the vending industry wants to incur this cost? The answer is that
for manufacturers and big vending retailers the profits are huge and will more than
cover costs — but at what cost to the public in general, small vendors and lower in-
come people, the latter being the ones who traditionally are the largest users of
vending machines for products and for services such as laundromats.
Mr. Chairman, I am not going to get into a contest with the Coin Coalition as
to the numbers of groups or interests which support a coin versus the numbers in
opposition. They have been at this game for many years since the last dollar coin
failed. I would suggest a few thoughts in closing, however:
— The huge amounts of energy and money the Mint would spend to produce a dollar
coin would be better spent in R&D on technically advanced forms of money, rath-
er than going backward toward a policy which has failed, and which the public
does not want.
— Consider why the last three Administrations have not considered it necessary to
seek authority to mint a dollar coin.
— Consider the decision a business might make in deciding to manufacture a prod-
uct if, in the last 18 months, every market research poll taken showed the public
overwhelmingly opposed to the product and unwilling to buy it as is the case with
public surveys on the dollar coin.
— Consider that the U.S. Mint will have to add people, machines, and plant capacity
at a time when we say we want to reduce outlays and eliminate unnecessary Gov-
ernment activities.
—Consider that if the CBO, GAO and Price-Waterhouse estimates are put on the
same footing, and if the public accepts the coin, the best case savings assumption
is maybe $20-$30 million per year — an amount which will pay the interest on the
public debt which will accrue during this hearing.
— Consider that the Coin Coalition is now all of a sudden quietly promoting the
stretching out of the implementation timeline for introducing a dollar coin from
18 months to 36 months when this would reduce the already minimal savings —
you have to ask yourself "why?" — particularly when such a move would further
reduce already questionable savings.
The issue is not how long we should take to implement this legislation; the issue
is why we are thinking about spending a lot of money to produce something our citi-
zens overwhelmingly do not want. And then how we will pay the enormous costs
of a likely failure, including the storage and meltdown coats for billions of unused
coins, not to mention the logistics and recall costs banks will incur.
Mr. Chairman, not long ago, CBS aired a news broadcast in which the dollar
coin's chief sponsor in the House said that the only way for a dollar coin to work
is to "force" it on the American people This interview gets to the heart of this issue.
The coin proponents want to "force" the dollar coin on people because the coin pro-
ponents also read the polls. I would ask the chief sponsor if he thinks his constitu-
ents elected him to force things on them, particularly policies which are not nec-
essary for the country, and which will cause disruption in daily commerce.
I have tried to note a few facts which are important policy considerations but are
not discussed by those who seek passage of S. 874. Their hope has been that this
proposal would be quietly slipped into budget reconciliation on grounds that it will
save huge sums of money. When those savings numbers were shown to be inac-
curate and highly inflated; the proponents conceded there would be some losses in
the first few years. Now they want to stretch out the timeline to 36 months from
18 months, saying that the big savings will come later. Don't be deceived by this
tact. The savings are not there.
I urge you to look at this proposal for what it is — a special interest bill which is
widely opposed by the citizens of this country, who have expressed their collective
103
wisdom time after time in reliable polls. Send this dollar coin proposal to the stor-
age vaults where it can die alongside its failed predecessor — the Susan B. Anthony
dollar coin. Well all be better off, and you will have made the right decision.
Thank you, Mr. Chairman.
PREPARED STATEMENT OF JEANNE EPPING
President and CEO of the American Society of Travel Agents
July 13, 1995
Mr. Chairman, I represent the American Society of Travel Agents (ASTA). Our
mission is to enhance the professionalism of travel agents through effective rep-
resentation in industry and Government affairs, education, and training, and by
identifying and meeting the needs of the traveling public. ASTA is the world's larg-
est and most influential travel trade association with over 25,000 members in 136
countries. I appreciate this opportunity to contunent, on the record, regarding the ne-
cessity to maintain the One Dollar Bill in its current form.
As an organization which seeks to promote the interests and convenience of trav-
elers, we feel that forcing the public to carry coins instead of dollars will be both
unnecessary and very inconvenient. We are also concerned that a dollar coin may
not be readily accepted overseas, particularly in remote regions of the world. Travel-
ers have enough problems today without worrying whether they can exchange U.S.
currency. To chance from the Dollar Bill to the coin will require a very extensive (and
expensive) publicity campaign not only in the United States but throughout the
world.
We are particularly concerned with the language of S. 874 which seeks to force
acceptance of the Dollar Coin, without regard for the opinions and preferences of
the American people. As a large public organization, which like Congress is very
sensitive to its constituency, we feel that actions contrary to our members' interest
are inevitably doomed to failure.
I am aware that dollar coin bills have been introduced in every session of Con-
gress since 1988 and have never passed the House or Senate. In our opinion, there
is nothing in this latest version of the dollar coin Bill which merits additional con-
sideration from its predecessors.
We are not alone in this opinion. Within the past year, there have been three na-
tional polls asking Americans if they wanted a dollar coin. All of them have been
overwhelmingly negative toward eliminating the One Dollar Bill in favor of a coin.
I would like to cite one poll in particular, conducted by the well-respected firm
of Yankelovich Partners. Last year, they undertook a nationwide survey with 1,000
individuals representing a full range of-economic and ethnic backgrounds.
The survey results overwhelmingly indicate that the American people do not want
to be forced to switch from the One Dollar Bill to a coin.
A few of the highlights are very illustrative of this point:
• 65 percent of those questioned oppose eliminating the one dollar bill.
• 88 percent feel that the one dollar bill is easier to use than a coin.
• 75 percent are satisfied with the one dollar bill and do not want a change.
In addition, the poll indicates a very real concern by 71 percent of the American
people that if the coin bill becomes law, the price of items purchased from vending
machines such as food and cigarettes will rise. They also expect to see increases in
the costs of other everyday items such as parking meters and pay telephone calls.
The Yankelovich Poll also asked the American people if they wanted Government
funds used to promote use of a dollar coin as called for in the 1993 GAO Report.
An overwhelming 86 percent responded that they opposed using Government
funds to suppct the promotion of the coin. The public is clearly aware of more ur-
gent priorities.
The coin legislation will be an excuse by the vending machine interests to raise
prices on everyday items — a future sales tax to be levied on all Americans but fall-
ing hardest on those who can afford it the least.
The burden of proof is on the coin coalition and its allies in the vending machine
industry to demonstrate that the public will not lose more than just the One Dollar
Bill.
It is very important to note that S.874, the Bill designed to eliminate the One
Dollar Bill in favor of the coin, does not allow the American people a choice, but
instead imposes on them a coin that they do not want.
104
None of us really want to see a repeat of the Susan B. Anthony drama in which
the dollar coin was overwhelmingly rejected by the public. It did not save us a nick-
el when it was minted, although officials said at the time that savings would be re-
alized.
At this moment, there are over 300 million dollars in Susan B. Anthony coins cur-
rently sitting idle in the U.S. Mint. Will we have to make room in a few years time
for another dollar coin, because we didn't heed the lessons of the past?
It is not enough to blame the failure of the Susan B. Anthony dollar on its design
alone. The people overwhelmingly rejected it as part of the currency system. The
people had a choice and they made it — clearly.
It is true, as often cited by the coin coalition, that countries such as Canada and
Australia switched to the dollar coin. It is also true that the public in those coun-
tries was not given the opportunity to make a choice.
When Canada switched from their Dollar Bill to the Loonie in 1985, they claimed
that there would be a savings. I recently heard the Canadians announce that they
were introducing a $2 dollar coin since the old dollar coin had lost its purchasing
power. To a traveler, purchasing power equals in inflation. I'm afraid that a dollar
coin will do the same thing in this country. We do not believe that the coin's advo-
cates have taken this fully into account in their claims that the Bill will save
money.
Finally, the prospect of having to carry ten $1 dollar coins in our purses or wallets
does exactly appeal to most travelers. People who travel are faced with enough in-
conveniences and certainly don't need to bring additional problems with them from
home.
On behalf of our membership and the traveling public, we urge you not to force
this change on the American people. We hope that you will continue to keep your
attention focused on the real problems that lay before us and not be diverted into
a dead-end issue by special interests seeking to promote their personal agenda at
the expense of the public.
105
104th congress
1st Session
S.874
To provide for the minting and circulation of one dollar coins, and for
other purposes.
IX TliE SENATE OF THE UNITED STATES
Mav 26 (legislative day, .UvY 15), 1995
Mr. Gra-MS (for himself. Ms. Moseley-BraUN. Mr. ILvRKIN, and Mr. KoHL)
introduced the following bill; which was read twice and referred to the
Committee on Banking, Housing, and Urban Affairs
A BILL
To provide for the minting and circulation of one dollar
coins, and for other purposes.
1 Be it enacted by the Senate and House of Representa-
2 tives of tJie United States of America in Congress assembled,
3 SECTION 1. SHORT TITLE.
4 This Act may be cited as the "United States One
5 DoUar Coin Act of 1995".
6 SEC. 2. ONE DOLLAR COINS.
7 (a) Color ^vxd Coxte.vt. — Section 5112(b) of title
8 31, United States Code, is amended —
9 (1) in the first sentence, bv strikiuo: "dollar.";
10 and
106
2
1 (2) by inserting after the fourth sentence, the
2 following: "The dollar coin shall be golden in color,
3 have a distinctive edge, have tactile and \'isual fea-
4 tures that make the denomination of the coin readily
5 discernible, be niinted and fabricated in the United
6 States, and have similar metallic, anticounterfeiting
7 properties as United States clad coinage in circula-
8 tion on the date of the enactment of the United
9 States One Dollar Coin Act of 1995.".
10 (b) Design of Coin by Secretaky. — Section
11 5112(d)(1) of title 31, United States Code, is amended
12 by striking the fifth and sixth sentences and inserting the
13 follo\ving: "The Secretary- of the Treasun,' shall select ap-
14 propriate designs for the reverse and obverse sides of the
15 doUar.".
16 (c) Effectr'e Date. —
17 (1) Ix GENERAL. — Not later than 18 months
18 after the date of enactment of tliis Act, the Sec-
19 retar\' of the Treasim- shall place into circulation
20 the one dollar coins authorized under section
21 5112(a)(1) of title 31, United States Code, in ac-
22 cordance \nth the requirements of subsections (b)
23 and (d)(1) of such section (as amended by sub-
24 sections (a) and (b) of tliis section).
107
3
1 (2) XUinSMATiC SETS. — The Secretary may in-
2 elude the coins described in paragraph (1) in any
3 numismatic set produced by the United States Mint
4 before the date on which the coins are placed in eir-
5 culation in accordance with such paragraph.
6 SEC. 3. CEASING ISSUANCE OF ONE DOLLAR NOTES.
7 (a) In General. — Except as provided in subsection
8 (b), beginning on the date on which the coins described
9 in section 2(c)(1) are placed in circulation in accordance
10 with such section, a Federal reserve bank may not issue
1 1 any $1 Federal Reserve note.
12 (b) LnnTED Production Permitted. —
13 (1) In GEN^ERAL. — Beginning on the date on
14 which the coins described in section 2(e)(1) are
15 placed in circulation in accordance with such section,
16 the Secretary of the Treasury shall produce only
17 such Federal Reserve notes of $1 denomination as
1 8 the Board of Grovemors of the Federal Reserve S\-s-
19 tern ma\' order from time to time to meet the needs
20 of collectors of that denomination.
21 (2) Issuance. — Notes produced under para-
22 graph (1) shall be issued by one or more Federal re-
23 ser\'e banks in accordance with section 16 of the
24 Federal Reserve Act and sold bv the Seeretan-. in
108
4
1 whole or in part, under procedures prescribed by the
2 Secretary.
3 SEC. 4. GENERAL WAIVER OF PROCUREMENT REGULA-
4 TIONS.
5 (a) In General. — Except as provided in subsection
6 (b), no provision of law governing procurement or public
7 contracts shall be appUcable to the procurement of goods
8 and services necessary for carrying out the provisions of
9 this Act.
10 (b) Equal Employment Opportunity. — Sub-
1 1 section (a) shall not relieve any person entering into a con-
12 tract under the authority of this Act from comphing with
1 3 any law relating to equal employment opportunity.
O
109
Potential Impact of Dollar Coin Legislation on
Low-Income Famiues in New York and Boston
July. 1994
By D*rrjl jtmkitu. PbD*
TwrvzRsmr op htsv haven
Aiitruc The CmnJiam ecptrUmt sttggtttt thtt '^Conpts
tiaaca le^datioa » mlasa the $1 hiS vah * $1 tan. d>a
frits ef setat ^to^ esA inwstt iM dnvvpt eeiM-optnutd
maehmes coniai aeriAse. An saeragr ijuretst afenfy 1%
wuldihtaittlat the cast 9fmicbuie-<iupfmtdmrTcbaat£se
ttmiJd m afpmataateif 5228,000.000 ytmi}. Sutaas
matau would have tkt matiteriata iwtptet OH teaiar dti-
ztns, thott iMng as a fixed buonu, end jndMdvak Uaing
at or heimu tbs pevtrty levtL PeiitTty4ivdfktKiUabm>tito
dapotahie ittsMint, ttnd thtttfmt aa mattsu in one bmdga
item retfuira A dttnast is tuathtr. For taanfU. tktyea^'
ly cott aft, 10% rut at the price ofcom-ofaaud laaidro'
mat mjuHtia uctdd tijiul the atnewu cfcasb A poverty
lend fktmfy ]peadt 9n ^<3<tri0 over stven dayt.
irCongzcu enacts legisbuon to repUce the $1 bill with
z tl coio. thse may be &r-reacfaing cfleoi on choce liv-
ing bdow the ymen.7 level, as vivil as loilar 1 ilijriii and
othes on fixed incomes. Evea a slight increase is vend-
ing mafhine pioductx can have a subwantiai impacr.
due 10 the dze of the vending machine indnstrr. Is
1992. the last year for whicn /igures ue available, nlex
of vending machine menjiandiie tmaJed
522,300.000,000 (S22J billion).^ Therefore, an aver-
age increaxc of only 1% would tmulate into a
S228,000,000 rise in the price of merchandise sold
thtough vendiiig xaaeiuaa (asmaung the purchaxing
rote remained zteady). Th>< figure doet not take into
account trrvitet sold through ooin-operaud machines,
tuch ai Toad tolU, paildng moeta. coin-operated iaun-
dromatx. and so forth.
Based OB (he Cxnadiaa etpeiieoee (die *Laoni<r dollar coin
^T3s icooduced in 1987), it ii likely that th* ietreducnaa of
a dofiar coin !□ chit ooucny vrould be Collawed by, a: the
vscf least, a modes inoease in pnces.^ Vending machine
opeiasxz could cite dte ootts ofnaiuuuing their machinei
toacacpcancwaoinaaiheieuon for price increueL
ANNUAL VENDING MACHINE SALES
Total Aoniul Saks S2Z3 billion
SdetbyCuesoiy
BCMit^miiB
M%
m Ca^ktiam
27%
nfeaJpfodKoa
24%
^Haibnemp!
7%
vC^nua
3%
mOmPrtJaat
3%
UJSatiLpuam
2%
Nocc AU<isaararl992.meaiasnoRityBU'iTuIable
Any increate in dte price of vending macnine otoducts (as
well as terrioa such as mass mnsic and toll collection)
would have a disprooonionate eSixt on low-income indi-
viduals, becsiise a a larger petcentige of their budget is
spent on vending machine produce and services.
110
For dw pwpoici of (hit raid^ -«« oondaoBd aa ceo*
Bomic Kudjr of penon UvinK in iha ISth New Yodt
CoasiaBooal Dbaia ud dx Rsodbuir B«gfabori>ood
of TImhiIiiibiii' Sdi Coaponoaal Oinia. (S«
Actaciuiuait'lO
We ifam (cviewed ifae tTpiol budEcc fiv a £m3y of four
Cvins B the pvitttj lerd ($H,£87). Unng numba
obained &ani the Dqnitment of Gminiacet 1991
ing tutakdowa of thu &iniV* lining rrprnwr
16502 (47%) &r food
$3J78(23%)foritnc
$i2W(15%)fardotha
$2J(3 (1S%) for tnosponadoa
Typical Budget for Families
Living at the Poverty Level
Somrtx 1991 Cra
Ik boUni one «pea of the dofhiof badges to iaa-
niac Iww much tha &iniiy twould tpead on liuodr^
We i«"'""«^ diK a &iiulx bdow die poveny lewd daa
DOC owB a woher and diyer and uis eoia operued Uuo*
diomat ftrilirirt A random airvef of 10 lanndronaa,
five !b New Vaddk ISdi Doaku, .:=d Sre m RcacbiuTi
indicxBBd due dte coat of a coin-operaied waihinc
««»'■*'''"« ran^ bcnreen il^S and SI J5 per load, widi
a wmiiaa aam of Sl^ (See Amdimenr #2.) Dixea
avenged $1 per load. Based on an odnute of eight
looda of laundi7 (a oonaemtrve cKuoate for a fomihf of
four), a &miJ7 itouU pay approidmxtelf CO per week.
or $lj040 a year to uaecoin opeoicd laundromaa.
If the avenge can. of wuhing and drying were to
inoeaaa by only 10%, die Impscc on low income &nu-
lici would be «nt»«T<wTi.il This ir became familiei living
at, or below, the poveny levd lave no disposable
income. Therefore, an incresK in one of the budget
items listed hae nian* a pioportionau decrease in one
of the other neeessitiei.
To give a cense of 'what an inoease in coin-opeiaced
laundiomais vvould mean, the graph on the following
page diowi die effoc of eoin-indufed price increases in
tenns of gtoceiy moae)L For cxunpie. if prices of ooin-
opetaBcd lauodronut machines were lo go up an average
of only 10%. this would et^uai over a year the cash die
aveta§e poverty bmiiy spends on groceries in 7 days. An
ioaeaie of 33% would equal the amount of cash spent
on grocehes over 25 days, or nearly a mondi. Even tak-
ing into consideration government assistance in the fom
of food stamps, increases in the case of deaning ciothei
will negatively impact poverty levd families.
It should be noted that this study focusei only on the
impact of price iacreaset in laundromat machines.
We have not looked at the impact of price incrcasa
for other gooos and services purchased through coin-
operated machines.
Ill
Impact of Price Incibasbs
ON Grocery Budgbt op
Low-Income Families
3«-p
34-
32 -
30-
U-
I":
c5 u -
K:
a -
6 -
4~
2 -
SH im ism vm 2}« 3m
Conclusion
k if qunc skv tba given the bigc amount of dollan
tpent oa vtadiag marhinfi (22.8 billioo ta 1992,
rrHiitiing the amouat ipcat on gunc mafiiion). cren
(noil «montwi of cota-iailiiced price infladoa wooU
bSfC lull pOCGBQW CO CUUC AAlVUJe eOOAOtni£ f^y^ if m
die cue of indhniiiuif bdow die povenjr lineii and jcttior
ddaeni aod odun Imng on « fixed inoome. \7e diere-
&K belioc di3t even a pfriiminaiy analyiis of th« datz
tmilcsDei *^«y niidicr reteArcn il indicaied* Hninuui
need lo be developed niidi regud to the pouibilit^ of
eoonoaoic dtdocadon due to vending mafhine pnce
tncxBuei. If pcioa do go up in conjuncdon with re-toot-
ing of marttinrt to ii i r^jt a new $1 coin, thii would
•mount to « gawcmmeoE-iadueed pdee increase at die
cspeaie of low-income eoonimert.
' For B-pmB. «ns De. JaiidES ic £1Q£ MacAniniz' Bivd. %tsa
' SottmcT AuieiBaaE Merdandocr (s sad: pobliatioa ia Bon
Addiaoa, Wil)
' A raonhet oc Ac CjiBifan PiilaaKnt tratie the feUowin; ob««y
wna tiiB t^ "Tnnnfr° vsi inrmriiifnl. *Tb«n wc mraiog
iiiitiiin in souse ogam raideaos zed it ba bees fetuu dut
diae il a siovtmeat towud dathf oom in midnna imry noa
iiiiftJifj HflnomipwintWi Fc? c3aJTipic« wsain^ oaciiino Wucii
Bsed m oos }0 ecns and 73 ^na b> nm, ocnr cos ok doStr. It
k mudi aaa aatnaaan to suiTt <ioiiar coin into » naaiiiiei uid
ths bat mast a 23% mocac in oos xd ^mor dmtsn ia ojr
aim.* (Meaiur of Fwlitinait Rjynon^ SluDjr. Coraimu
Dct»B.9/I3/B7).
112
Al TACiiMCNT til (Nlw YauunSm Disntici)
Niv York 13th CONCKSsstONAt Diitkict
2^0A
tkm^Jlml
fVMm
Hmim^
Mtimfmmtf
-rx— .
\mi
OCTHCDBAL
laucB
4I9JM
UM$
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4M25
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23411
9sn
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MANHiTXANVILLB
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2.fM
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lano
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M.905
IflUl
HAMIUCON GBANCX
M.M3
U3tt
«A17
Z.M(
21Mt
\xm
lOOS
AUDUBON
JljOW
11417
7.1U
UIS
II^U
l<S»t
10(33
WkSHIMCTON BUDC£
49JI1
iMsr
5J07
:.iM
M7«
a7i»
IMM
INVOOD
MAI
t].lM
^.W
JJIO
10.693
103O
ioes>
TMBOROUCH
M^r^
UZ7
'4J1)
lOM
i.5M
4,11)
loosr
amsT
W.193
lOJtM
4.S20
iJSO
4j(a
10J47
IM9»
CQIflhOALPAU
Uwm
1A4
4JSM
i,+o
i}j<i
2SiM4
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PORTGBOilCB
STAi9
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I.7U
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l»J31
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mfia
2S1M0
w^a
319»l
:i7j«7
IIMZ3
ast
ATT.VCIIMLNT ffl (lJosTON/8111 DlSTUlCT IROXBUIiY])
Massachusetts 8th Conckessional District
Z^OM
AarfliM
ftmim^
Willi itrit
milium
HmmmtU
AliMii'
OUli
OCTHOIRAL
UJU
MJl
2^1
113
7JI1
3.0W
mvt
ROXBUKy
ISJOO
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iMi
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<4»
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RQOCBUKirCBOSSING
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4.I1I
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3.<M
1J«
TOTAL
JJJU
1M7I
&M1
""
ll^M
7J»3
&«n« (UCmM>/990
113
NnrYoikl^thDUb
SuperW4ih4
2391 8th /M
UJ
Maurice Lauadroraix
SOl^WlMlKSt
1.S0
M^ YentURi
3<aE92ndSi.
1.25
QffC. Uunrhnnut
2394 7th Am.
1.50
Coin-O-Raina
30L«aii^>«.
1.50
laadfia
Bailey'i Coia-Op Lnindroaut
1135Hani*0BAM.
1.75
Nonoo'i Mtftig
lS46'^tUiiiigton
1.00
Gninxiu!!i Lausdiy Inc.
223 Grave. W. Raxbuiy
1.25
Spiiag Soea Lauodfy
7 Spring. W. Rflxfaury
1.50
Bubhls Coin Laundiy
. 1239 VFWPkw^-W. Rax.
1.50
5
o
BOSTON PUBLIC LIBRARY
ISBN 0-16-047742-5
9'780160"477423
90000
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